Risk-free and Currency Volatility
Keith Mullin
35 years: Capital markets editorial
In this last video of the series, Keith explains how currency volatility can impact so-called risk-free investments.
In this last video of the series, Keith explains how currency volatility can impact so-called risk-free investments.
Join now to start learning today
Finance Unlocked is the video learning platform built for finance professionals.
This content is also available as part of a premium, accredited video course. Sign up for a 14-day trial to watch for free.
Risk-free and Currency Volatility
1 min 26 secs
UK Government debt is essentially risk free in the sense that the funder will receive their money back. However, other UK assets i.e. currencies are subject to volatility, and thus investors and traders face heavy risk.
Key learning objectives:
Identify if there are risks associated with UK Government debt
Be able to classify if all Government assets are risk-free
Explain how currency volatility affects returns
Book a demo to access
This content is also available as part of a premium, accredited video course. Sign up for a 14-day trial to watch for free.
Is Government debt risk-free?
Based on its credit rating (Strong Double A) and its international standing and track record, UK Gilts are to all intents and purposes risk-free assets.
Holding UK Government debt may be risk-free in terms of your ability as a buy-and-hold investor to get your money back.
Are all Government assets risk free?
The short answer is No.
For example, The Sterling’s performance against the USD since the 2015 UK general election shows extreme volatility.
How can currency volatility impact returns?
Non-sterling-based investors holding unhedged sterling assets and looking to trade in or out will have been exposed to severe currency-related losses depending on their chosen entry and exit points during this period.
For example, the Sterling exhibited extreme downside volatility in the period leading up to the Referendum, and again when the likelihood of a no-deal Brexit hardened.
Book a demo to access
This content is also available as part of a premium, accredited video course. Sign up for a 14-day trial to watch for free.
Keith Mullin
12:37
06:19
16:02
05:10
08:09
Related videos
What is Risk-Free Debt?
The concept of risk-free debt is deeply embedded in financial markets as short-hand for high-quality liquid debt that retains its value over time. In the first video of this series, Keith explains what is meant by "risk-free" and how nothing in financial markets can ever carry zero risk.
Keith Mullin • 09:41
Early Market Reception to Risk-Free Rates
Keith highlights the intended transition from LIBOR to SOFR, an alternative risk-free rate. However, associated with this transition is a wide range of reluctance and objections, many of which are discussed within the video. Some of which include - uncertainties regarding how the new rate will work overtime and arguments from mid-sized US banks about the 'one size fits all' approach.
Keith Mullin • 16:34
Introduction to Risk-Free Rates (RFRs)
In the first video of his series, John introduces the IBOR transition process. He begins by explaining how LIBOR emerged, became one of the major focal points for regulators and central banks and was entrenched in all markets for all financial market participants. John briefly explores the two unavoidable issues with LIBOR that have surfaced in the last few years.
John Ewan • 09:11
Risk-based Decision-Making
In this video, Hans-Kristian looks at risk-based decision-making, exploring how corporates can make better investment and capital allocation decisions in a complex and unpredictable world. He also focuses on the role of the business case and how corporates can improve it to ensure that capital is allocated to the opportunities that are most likely to generate the greatest value.
Hans-Kristian Bryn • 15:57