From the course: Finance Foundations: Risk Management
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Overview of financial market risks
From the course: Finance Foundations: Risk Management
Overview of financial market risks
- Interest rate, currency, and commodity price risks are important for the financial stability of a company. Understanding them will make you interesting at corporate parties, and knowing how these risks impact your business can have a valuable impact on your bottom line. Interest rates directly impact the price of money. When interest rates rise, the cost of money goes up, which makes it more expensive for a company to do business. This change is well out of the control of companies as central banks determine underlying policy rates, which are independent of credit considerations. Higher interest rates make the debt a company has more expensive to finance, like if the interest rate goes up on your credit card. Of course, interest rates can also fall. But when we talk about risk, we're talking about the negative risks from higher interest rates and interest rate risk is how corporate executives describe the potential negative…
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