Value at Risk

 Most lenders including financial institutions use the value at risk assessment to determine how much risk is involved in a given scenario. Since they are in business to make money, they have to reduce the amount of risk they involve themselves in. Losing money due to people not paying what is owed can result in them going under as well. With the value of risk they can assess the probability of loss that could occur over a given frame of time.

It is commonly referred to as the VaR by many institutions. There are many factors that play into it, so the results can be quite different from one time period to the next. How volatile the market is at a given time will play a huge role in the VaR. There are several different tools that institutions use to calculate the VaR, but all of them will give them similar results.

However, the VaR also gets plenty of criticism in the market. Many complain that such predictions aren't always a fair indicator of how they will repay what they borrow. Therefore they feel they are being penalized for what has taken place in history rather than based on their own merit.

Rolling Settlement

A rolling settlement is one that you will get your return on after a set period of time. This concept refers to trades that take place with any of the various stock exchange locations. The number of trading days will be known and therefore investors can determine exactly when they will be receiving any funds they have earned on their investments.

This is important because with a rolling settlement there are likely to be investments that are traded each day. This process allows investors to really see how much they have earned for each day, and not as a total over that time frame. It is important to understand that those days may be offset by weekends and holidays. Understanding that can help investors to be accurate about the days in which they can expect to receive payment for their earnings.

You will find that for the past 20 years rolling settlements have been increasingly popular. Due to the high amount of international trades that take place daily, a common ground had to be established for paying out the dividends. That common ground is almost always in the form of a rolling settlement.

Entry and Exit Load

The terms entry and exit load refer to mutual funds. They refer to the fact that you will be charged fees when you invest in mutual funds. These fees are to offset the overhead costs of the companies you work with to obtain such investments. The fees are generally a percentage of the amount you invest in the mutual funds. Therefore it is important to understand how much these fees will be before you commit to such investments.

The company has the choice to either charge you these fees when you purchase the mutual funds or when you decide to sell them. Should they decide to charge the fees when you buy the mutual funds then the transaction is an entry load. If they choose to charge you for the fees when you sell the mutual funds then the transaction is an exit load.

It is important to understand that entry load fees aren't refundable. So even if you end up losing money on the investment you won't get those fees returned to you. Most companies go with the entry load though as that way they can collect their fees early in the game. They don't have to worry that the investor won't be able to pay them if they wait to go with an exit load.

Reinvestment Risk Rate

There is often a significant risk involved for the holders of bonds when it comes to reinvesting. It is important to understand that the rate of return is going to be less if the rates drop. This is because that process prevents most investors from successfully being about to invest at the assumed rate.

Investors need to be very careful with this when there is a trend of interest rates continuing to drop. Knowing your reinvestment risk rate will help you to calculate the overall risk that is involved with particular types of investments. The fact that the dividends from the initial investment may not be invested at the same or a higher rate is something you will have to be prepared for.

The issue of the reinvestment risk rate pertains more to those that engage in long term bonds than short term investments. This is because they may have to be reinvested after rates have dropped from what the purchase price was. This is one of the main calculations that investors look at when they want to predict what their risk is for a given investment.