Question

"No Investment Decisions are made without calculating risk." Do you agree? As an Investment Manager of a firm, discuss the various steps involved in the investment decision making process.

Answer 1

Investment is the resources, which are spent in the hope of future benefits actualized within a specified time frame.
So making an investment we must take into account certain factors, which influence the outcome of the project. Uncertainty of these factors in the future forms some risks for the success of the project and the possibility to receive a benefit from it.
So, prior to the investment process these major project risks must be calculated.
There are 9 types of investment risks:
- interest rate risk;
- business risk;
- credit risk;
- taxability risk;
- call risk;
- inflationary risk;
- liquidity risk;
- market risk;
- reinvestment risk;
- social/political/legislative risk.