Risk

Uncertainty associated with the value of an investment. An individual who faces situations, whose consequences are not certain, faces risk. The investor is confronted with risk when he acquires stocks or bonds which outputs vary from one year to another (and consequently he deals with profits or losses which vary in an unforeseeable way). The risk can be described in several different manners: for example, as the variability of the outputs or as the probability that an output is smaller than a certain value.

The nature of the risks can be multiple: economic risks and financial risks (inflation, exchange rate, economic depressions, or political instability). These risks induce the volatility of the financial assets which are more or less dependent on the various sources of risk.

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