Investment Risks Essay Example | Topics and Well Written Essays - 2500 words

Investment Risks - Essay Example This refers to the poor earning reports, legal actions against the company, management ineffectiveness, or potential bankruptcy related issues that might keep an investor from investing in the company’s securities and stocks. Credit risk refers to the possibility that the company will not be able to meet its obligations and pay off its debts as and when these become due. If this situation arises, this could have a drastically negative effect on the company’s performance and its perception into the minds of potential investors. This might also result in a decline in stock prices and may ultimately lead to solvency problems for the company.This refers to the situation where movements in exchange rates adversely affect the investments for an individual or the company. The exchange rates may move in favor of or against the investments for people. If exchange rates are decreasing, an investment in a security becomes attractive as other investment models, like foreign currenc y, becomes unattractive due to exchange rates being reduced. However, if exchange rates show an increasing trend, an investor might not be willing to invest in a company’s securities until the return from the investment in securities is more than the return from investments in foreign currency. In addition, for multinational companies or for those who try to diversify their portfolio by investing in foreign currencies, exchange risk might be a very critical element to take into account before making the investment.