Enumerate about the purchasing power risk, Risk Management

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Enumerate about the Purchasing Power Risk

A factor affecting all securities is purchasing power risk, also termed as inflation risk. With uncertain inflation, real (inflation adjusted) return involves risk even if nominal return is safe. This risk is related to interest  rate  risk,  as interest  rates  generally  rise  as  inflation increases,  since lenders  demand  additional  inflation  premiums  to compensate for the loss of purchasing power.

 


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