Managing Risks in Capital Market Securities and Nonmarketable Financial Assets

Capital market

Capital Market securities: 1
Contents
(B) Explain how to manage risks identified in question (A)..................................................................2
How to manage risks from investing in Derivatives Securities..............................................................3
Introduction...........................................................................................................................................4
Shares....................................................................................................................................................4
Bonds....................................................................................................................................................5
Debt.......................................................................................................................................................6
Recommendation...................................................................................................................................7
Conclusion.............................................................................................................................................7
References.............................................................................................................................................9

Capital Market securities: 2
(B) Explain how to manage risks identified in question (A)
How to manage risks from investing in Nonmarketable financial assets
1. Short-term interest rate
Investors are quite concerned about the inflation rate that effects in rising federal spending
and debts value of money, to understand and address inflation uncertainty of risk. It is
required to prepare unexpected inflation with two-basis strategy. First, one is inflation by
allocating short-term bonds that frequently updated and second one is attempt to earn a total
return that investing equities and treasury inflation protecting sectors. Inflation protected
securities are good inflation hedge as their principle is adjusted for changes in consumer price
to provide good way to diversify to determine the operation in proper manner (D’Amico,
2016). However, in short term holding the volatility helps to determine the inflation rate to
manage the diverse of the financial condition in proper manner.
2. Inflation hedge
Despite availability of short-term bonds, inflation hedge is one of the important aspects to
control the risk related investments in market to large extent. An inflation hedge is an
investment that helps to consider protection against purchasing power to develop the loss of
its value due to rise of price accordingly. Besides that, against hedging inflation intended to
protect the investors with real value of money (Swanson, 2014). In general, commodities and
negative correlated with both stocks and bonds to determine the operation accordingly.
Therefore, these are two way to determine the process and provide the best approach to
handle the high inflation rate in investments operation.
How to manage risks from investing in Capital Market Securities
1. Securitization
Securitization is the one of the important tool that helps to manage the capital marketing
securities in effective manner. The progress of over managing risk provide the instruments in
investors approach to analysis the limited operation to analysis the condition to analysis the
risk related issues in proper manner (DeAngelo, 2014). There is different type of bonds that

Capital Market securities: 3
helps to protect as well as provide the experience to analysis the condition and handle the
interest to provide the best approach in proper manner.
2. Maintaining the NOI growth
It is important to analysis the cash flow and maintain the proportion in reliable manner. It
needs to provide the best approach to handle the derived and maintain the quality of overall
rate of return to get tier to over the growth of the firm through investment operation (Stiglitz,
2015). It is important to determine the threshold, risk related distribution to generate the total
return, and provide the higher growth rate accordingly. This helps to build up revenue to
provide cash flow income in determine the growth condition in proper manner. Therefore,
this helps to determine the total returns to manage the bases to expect the situation
accordingly.
How to manage risks from investing in Derivatives Securities
Derivatives can be used for risk management by hedging positions to prevent the risk of
adverse changes in assets. Hedging is the act of offsetting a related security, which mitigate
against unfriendly value developments. A derivative is a financial instrument in which the
price relies upon the underlying asset. A derivatives is a contractual agreement between the
parties that indicates which party is committed to purchase or offer the underlying
security and which party has the privilege to purchase or offer the underlying security.
Hedging occurs when the individual or institution has access to the asset for a specific period
of time and can then hedge based on futures contracts at a specific price in the future. This
enables the individual or institution to hold the benefits of an asset, while diminishing the risk
that the future selling price will deviate unexpectedly from the market's present evaluation of
the future value of the asset.
Derivatives allow the transfer of price-related risks of related assets, such as commodities
from one party to the other. For example, a wheat farmer and a miller could sign a futures
contract to exchange a certain amount of cash for a certain amount of wheat in the future.
Both parties have reduced a future risk that the uncertainty of the price for the wheat farmer,