O'Reilly logo

The Fundamentals of Money and Financial Systems by Shahdad Naghshpour

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

CHAPTER 9

The Role of Risk on the Interest Rate

Introduction

In the previous two chapters we referred to risk and how interest rates must be adjusted to reflect the risk associated with different ventures, as well as the borrowers’ risks. Many important issues about risk were not discussed. What risk is, how it is calculated, and how it affects interest rates are some of the more obvious questions that were left unanswered.

The difference between risk and uncertainty is that the former has a possible undesirable consequence. The lower the probability, the less the chance of occurrence of the outcome, while the higher the probability, the greater the chance of occurrence. The smallest probability of occurrence is zero, while the largest is one. ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required