As a risk and security practitioner, it is vital to have a clear view of the risks associated in investments. A risk security practitioner is a professional business consultant who advise individual and corporate entities on how to safely handle risks to enhance the upside risk while lowering downside risk.
In the simplest of terms, the “investment risk,” is a possibility of an investment bringing a result other than anticipated one. You may lose some or all of your invested funds, even though you anticipate profit. You can also gain something, but less than you have expected. For example, you could have expected a return on investment of 5% but got only 2%. It is important to realize that every investment entails some risk and below are some of the risks a competent risk and security practitioner should be familiar with:
Inflation risk or the purchasing power risk
Inflation in Zimbabwe has been present since 1992, with the year 2008 hitting a highest record of 89.7 sextillion percent. Inflationary risk is the risk that the future real value (after inflation) of an investment, asset, or income stream will be reduced by unanticipated inflation. Inflationary risk refers to the risk that inflation will undermine the performance of an investment, the value of an asset, or the purchasing power of a stream of income. Looking at financial results without taking into account inflation is the nominal return. The value an investor should worry about is the purchasing power, referred to as the real return.
Interest rate risk
We are familiar with this one in Zimbabwe due to the continuous falling of the ZWL against the USD. Investors and businesses exporting or importing goods and services, or making foreign investments, have an exchange-rate risk but can take steps to manage (i.e., reduce) the risk. The exchange risk arises when there is a risk of an unfavourable change in exchange rate between the domestic currency and the denominated currency before the date when the transaction is completed
Credit Risk
Zimbabweans have been well known with a poor credit rating with people borrowing clothes at retail shops and failing to repay. Credit risk in risk businesses incur by extending credit to customers. It can also refer to the company’s own credit risk with suppliers. A business takes a financial risk when it provides financing of purchases to its customers, due to the possibility that a customer may default on payment.
Economic risk
A firm has economic risk (also known as forecast risk) to the degree that its market value is influenced by unexpected exchange-rate fluctuations, which can severely affect the firm’s market share with regard to its competitors, the firm’s future cash flows, and ultimately the firm’s value. Economic risk can affect the present value of future cash flows. An example of an economic risk would be a shift in exchange rates that influences the demand for a good sold in a foreign country.
Political risk
Political risk is a type of risk faced by investors, corporations, and governments that political decisions, events, or conditions will significantly affect the profitability of a business actor or the expected value of a given economic action. Political risk can be understood and managed with reasoned foresight and investment.
Market Risk
Market risk involves the risk of changing conditions in the specific marketplace in which a company competes for business. One example of market risk is the increasing tendency of consumers to shop online. This aspect of market risk has presented significant challenges to traditional retail businesses.
Liquidity Risk
Liquidity risk includes asset liquidity and operational funding liquidity risk. Asset liquidity refers to the relative ease with which a company can convert its assets into cash should there be a sudden, substantial need for additional cash flow. Operational funding liquidity is a reference to daily cash flow.
Operational Risk
Operational risks refer to the various risks that can arise from a company’s ordinary business activities. The operational risk category includes lawsuits, fraud risk, personnel problems, and business model risk, which is the risk that a company’s models of marketing and growth plans may prove to be inaccurate or inadequate.
