Risk-free asset

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Risk-free asset

An asset whose future normal return is known today with certainty.

Risk-Free Asset

An asset in which the return is known with certainty. The certainty generally comes from a supreme amount of confidence in the issuer of the asset; for example, Treasury securities are considered risk-free because the United States government is considered the best possible issuer. Critics contend that there is no such thing as a risk-free asset because, in theory, even the US government could default. However, risk-free assets have such a low level of risk that it may be ignored. Nonetheless, risk-free assets usually have a low rate of return, and, as a result, even these are exposed to inflation risk.
References in periodicals archive ?
Nick Tolchard said, "Non-resident Indians view cash as having an attractive relative yield as well as being a more risk free asset, thus leading them to allocate more to Indian based deposits.
For fixed income investors, the emergence of EM countries with better macroeconomic fundamentals than many developed countries may over the long run alter the concept of what constitutes a risk free asset.
Investment programmes that focus on short-term payment certainty will struggle, as they will need to redefine what a risk free asset is.
Combing the risk free asset with the Markowitz efficient portfolio he introduced the capital market line as the efficient portfolio line.
More importantly, by allocating assets across different classes such as stocks, funds and risk free assets, we can protect users' principles before chasing for high returns.
In a sign that regulators are already aware of the problem, the head of the European Central Bank's supervisory arm -- which takes powers over euro zone banks on Nov 4 -- told Estonian newspaper Aripaev recently that the financial crisis taught Europe that there are no truly risk free assets.

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