Interest Rate Risk
Interest rate risk is the potential drop in a fixed income security’s value due to interest rate fluctuations. When interest rates increase, the value of fixed income securities, like bonds, typically decreases; conversely, they gain value when rates decline. This inverse relationship stems from the fixed cash flows of these instruments becoming less attractive as rates shift. Unlike fixed income securities, equity shares and similar securities are not directly subject to interest rate risk, as their valuation depends more on company performance and market dynamics rather than interest rate changes.
Related Terms
Capital Gains
A capital gain is the profit earned when an investor or trader sells assets like...
Benchmark
A benchmark is a standard used by investors to evaluate the performance of stocks, commodities,...
Cash Flow Statement
A cash flow statement tracks a business’s cash inflows and outflows over a specific period,...
Abc Wave Theory
The ABC Wave Theory, also known as Elliott Wave Theory, is a method used to...
Diversification
Diversification is an investment strategy that spreads risk by allocating funds across various asset classes,...
Accrued Interest
Accrued interest is the interest that accumulates during the current accounting period but remains unpaid...
