TYPES OF RISK

• SYSTAMATIC RISK/ MARKET RISK/ NON-

DIVERSIFIABLE RISK.
THE VARIABILITY IN A SECURITY’S TOTAL
RETURN THAT IS DIRECTLY ASSOCIATED WITH
THE OVERALL MOVEMENT IN THE GENERAL
MARKET OR ECONOMY IS CALLED SYSTAMATIC
RISK
 UNSYSTAMATIC RISK
• NON MARKET RISK OR
• DIVERSIFIABLE RISK.
 MARKET RISK
• RISK OF A SECURITY OR ITS SENSITIVITY TO
THE MOVEMENTS IN THE MARKET.
• BETA INDICATES THE EXTEND TO WHICH THE
RISK OF A GIVEN ASSET IS NON-
DIVERSIFIABLE.
 INTEREST RATE RISK
• THE VARIASBILITY IN RETURN ON SECURITY
DUE TO CHANGES IN THE LEVEL OF MARKET
INTEREST RATES, OR IT IS THE LOSS OF
PRINCIPAL OF A FIXED- RETURN SECURITY DUE
TO AN INCREASE IN THE GENERAL LEVEL OF
INTEREST RATES.
• WHEN INTEREST RATES RISE, THE VALUE OR
MARKET PRICE OF THE SECURITY DROPS, AND
VICECERSA.
 INTEREST RATE RISK
• TWO TYPES
• 1) PRICE RISK
• INVERSE RELATIOSHIP BETWEEN THE
SECURITY PRICE AND INTEREST RATES.
• 2)REINVESTMENT RISK.
• UNCERTAINTY ABOUT THE INTEREST RATE AT
WHICH THE FUTURE COUPON INCOME.
INFLATION RISK/PURCHASING POWER
RISK
• NOMINAL RETURN
• REAL RETURN
 EXCHANGE RATE / CURRENCY RISK

• FIXED EXCHANGE RATE SYSTEM- NO RISK

• FREE FLOATING
 BUSINESS RISK
• INTERNAL
• EXTERNAL
• MEASURED THROUGH EBIT.
 FINANCIAL RISK
• USE OF DEBT FINANCING
• MEASURED BY DEBT/EQUITY RATIO
• HIGHER THE RATIO HIGHER THE RISK.
 DEFAULT RISK
• COMPLETE FAILURE OR DELAY IN PAYMENT.
• CAPITAL RISK
• INCOME RISK
 LIQUIDITY RISK
• BOUGHT AND SOLD QUICKLY WITHOUT PRICE
CONCESSION.
• LIQUIDITY RISK OF BANKS
 MATURITY RISK
• TERM OF MATURITY OF THE SECURITY
• THE LOMGER THE TERM TO MATURITY, THE
GREATER IS THE RISK.
 CALL RISK
• CORPORATE BONDS(CALL PROVISION)
• GIVING UP HIGH COUPON RATE.
RISK RETURN TRADE OFF
FACTORS AFFECTING INVESTMENT
• ?
• MODULE –II
• MONEY MARKET
 CALL MONEY MARKET
• THE DAY TO DAY SURPLUS FUNDS, MOSTLY OF
BANKS ARE TRADED.
• HELPS THE BANK TO BORROW WITHOUT
COLLATERAL FROM OTHER BANKS TO
MAINTAIN CRR.
• ONE DAY TO A FORTNIGHT.
• REPAYABLE ON DD OR AT THE OPTION OF OF
EITHER THE LENDER OR BORROWER.
• LIQUID AFTER CASH.
 PARTICIPANTS IN THE CMM
• SCHEDULED COMMERCIAL BANKS
• NON SCHEDULED COMMERCIAL BANKS
• FOREIGN BANKS
• STATE , DISTRICT AND URBAN, COOPERATIVE
BANKS
• DISCOUNT AND FINANCE HOUSE OF INDIA(DFHI)
• SECURITIES TRADING CORPORATION OF
INDIA(STCI)
• CALL MONEY MARKET – OVERNIGHT BASIS
• NOTICE MONE MARKET – 2 TO 14 DAYS
• TERM MONEY MARKET – 15 DAYS TO 1 YEAR.
 Call Rate:

• Call Rate is the rate of interest that is paid on

Call Money Loans. It is highly volatile because
the changes in demand and supply of Call
Loans are instantly reflected in Call Rates. Call
Rate also helps the RBI access the liquidity
situation in the economy.
• There are two Call Rates in India:
1) Inter-bank Call Rate
2) Lending rate of DFHI
• The eligible participants are free to decide Call
Rates in the Call Money Market. Interest
payable on Call Money is based on the
methodology given by the Fixed Income
Money Market and Derivatives Association of
India (FIMMDA), which is a voluntary
association of Commercial Banks, Financial
Institutions and Primary Dealers.
 FUNCTION
• Call Loans are availed through auctions or
negotiations on Call Rates. The highest bidder
gets the loan. Electronic trading platform
called Negotiated Trading System (NDS),
deals with Call Money. The Call Money
Market is known as the most sensitive segment
of the financial system.
 REPO MARKET
• A repurchase agreement (repo) is a form of short-term
borrowing for dealers in government securities. In the
case of a repo, a dealer sells government securities
to investors, usually on an overnight basis, and buys
them back the following day.
• For the party selling the security and agreeing to
repurchase it in the future, it is a repo; for the party on
the other end of the transaction, buying the security
and agreeing to sell in the future, it is a reverse
repurchase agreement.
• Repos are typically used to raise short-term capital.
 CBLO
• A collateralized borrowing and lending
obligation (CBLO) is a money market
instrument that represents an obligation
between a borrower and a lender as to the
terms and conditions of a loan. Collateralized
borrowing and lending obligations allow those
restricted from using the interbank call money
market in India to participate in the short-
term money markets.
• Collateralized borrowing and lending
obligations (CBLOs) is operated by the Clearing
Corporation of India Ltd. (CCIL) and Reserve
Bank of India (RBI). CBLOs allow short-term
loans to be secured by financial institutions,
helping cover their transactions. To access
these funds, the institution must provide
eligible securities as collateral—such
as Treasury Bills that are at least six months
from maturity.