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 ?
'In this context, risk-free assets don't deliver profitability.
Treasuries, the highest yielding risk-free assets available.
The introduction of the risk-free asset in this analysis means that finding an optimal portfolio for a given level of risk tolerance can be separated into two easier problems: first finding an optimal mix of market securities that does not vary with risk tolerance, and then combining it with an appropriate amount of risk-free assets (Buiter 2003).
He said that due to rising US Treasury interest rates, foreign fund managers are diverting investment back home in risk-free assets from most high-risk, low return emerging markets.
Low-inflation regimes have tended to yield a negative correlation between the prices of risky and risk-free assets, whereas high-inflation regimes have tended to yield a positive correlation.
Third, as yields on risk-free assets such as US treasuries rise, investors are likely to demand a higher risk premium for holding riskier assets such as equities and emerging market bonds, thus causing the value of these assets to decline.
Interest-bearing CBDC could have a rate of return in line with risk-free assets such as short-term government securities.
The rates of swap IRS 1Y served as the rates on risk-free assets. The market was represented with the WIG --the main index of the Warsaw Stock Exchange, which covers share prices of all listed companies.
When a financial market experiences a slump, investment returns on stocks (risky assets) can fall below returns on bonds (risk-free assets).
However, at a time when returns on risk-free assets are so low, clients are increasingly focusing on direct investments, including real estate, infrastructure, new technologies, aircraft and gold.
In the n stage, the yield of the risk-free assets is determined, which is denoted as [r.sub.n]; the yield of J kind of risk assets is [r.sup.j.sub.n], j = 1, 2, ***, J.
'Having said this, uncertainties over Brexit will cause the Fed (US Federal Reserve) and other central banks to be dovish - resulting in yields on risk-free assets remaining low longer.