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 ?
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.
From a myopic perspective, liquidating risky assets and investing funds in risk-free assets may seem more profitable.
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.
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.
Volatility is the entry price we pay for making returns higher than those available from risk-free assets.
Risk avoidance, which is achieved using risk-free assets like cash and cash-equivalents.
Second, some passive traders do not participate in the equity market and hold only risk-free assets.
If you are invested into risk-free assets basically you will just not be rewarded.
They are encouraged to choose safer, risk-free assets because of certain funding requirements in the regime they're regulated by.