Inlationary Risk and Interest Rate Risk

Inlationary Risk and Interest Rate Risk




Inflationary risk refers to the potential threat that inflationary pressures will erode the purchasing power of investments or income over time. Inflation occurs when the general price level of goods and services rises, reducing the value of money. This can have adverse effects on investments, savings, and fixed-income securities. Inflationary risk is particularly concerning for investors because it can diminish real returns and lead to a decrease in the value of assets.

Interest rate risk refers to the potential adverse impact of fluctuations in interest rates on the value of investments, particularly fixed-income securities. Changes in interest rates can affect the present value of future cash flows, leading to fluctuations in bond prices and yields. Investors face interest rate risk in both rising and falling rate environments.