Financial Education - Liquidity risk interest rate and foreign exchange risk

Liquidity risk is associated with the risk that, even if the assets are available and there is a willingness to trade them, it may not be possible to buy or sell them, or it may not be possible to do so quickly enough and at the right price.

Market risk refers to the probability that the value of a portfolio, whether investment or business, will be reduced due to unfavorable movements in the value of the so-called market risk factors.

Interest rate risk is the risk associated with movements against interest rates. For example, if one company is a lender to another, it will benefit from rising interest rates. Conversely, if that company is the one receiving the loan, it would benefit from lower interest rates because it would have lower financial expenses.

On the other hand, exchange rate risk is the risk associated with variations in the exchange rate in the foreign exchange market. It depends on the position held, the volatility of the currency and the time period considered.

Credit risk is the possibility of suffering a loss as a result of non-payment by our counterparty in a financial transaction, i.e. the risk of not being paid, in short, credit risk is the possibility of suffering consequences due to a lack of credit.