In the money market, reinvestment risks are regarded as the opposite of interest rate risk; they occur when interest rates go down so that when your current fixed deposit matures, you cannot find another fixed deposit instrument that would give you the high returns you got from the matured one.
Each asset class and different assets within one class, has its own peculiar growth cycle, income pattern and life cycle; they also have their own unique risks like market risk, concentration risk, liquidity risk, currency risk, reinvestment risk and inflation risks.
However, in the context described above, that is the price you pay to mitigate reinvestment risks
Mumbai: Investors are often confused as when it is the right time to exit a mutual fund scheme because exiting a scheme in haste can result in reinvestment risks
and transaction charges.
Splitting a pension pot can incur substantial administrative costs and create reinvestment risks
Senior Financial Analyst Tom Zitelli and Financial Analyst Frank Walko discuss positive retirement-market trends amid interest rate and reinvestment risks
There are no interest rate and reinvestment risks
, as the profit rates are fixed for the tenure of the placement, PACRA added.
Seventy-five percent of bank respondents are satisfied with the tools for assessing, measuring, and mitigating liquidity risks; 66% to 69% of the respondents are satisfied with the tools for capital management, managing credit, interest rate, and capital risks; and 61%-64% of the respondents are satisfied with the tools for managing currency, market, and reinvestment risks.
Logit model results significantly indicate that the current tools are adequate for assessing, measuring, and mitigating credit risks, interest rate risks, and reinvestment risks across the three categories of businesses, but they are inadequate for managing liquidity risks.
It's relatively constant because a market rate change causes an equal and opposite reaction in the price and reinvestment risks. The interest's future value increases as rates increase, but the increase is offset by a decrease in the bond's sales price at the investment horizon's end.
* Reinvestment risk. Reinvestment risk occurs when interest payments during the bond term cannot be reinvested at the market rate.
A decrease in the market interest rate has a negative reinvestment risk and a positive price risk.