FINANCE

Financial Investment Opportunities; Investments, Risk, and Taxation

Financial Investment Opportunities; Investments, Risk, and Taxation

Introduction

Globalization and IT advancement has lead the world towards the creation of several financial investment opportunities; however, these opportunities associate different risks as well as returns. This report provides the illustration of different types of risks as well as investments in relation with HSBC bank. Furthermore, it also reviews the suitability of each type of investment for different types of people. Secondly, this report also provides the aspects of taxation through the given scenarios, while illustrating various tax free investments of HSBC and its importance for different types of people.



Discussion

Different Types Of Individual Risk Associated With The Investment In HSBC Bank

All the investments associated some types of risks, where, risk depicts a certain uncertainty, by way of which the expected return from an investment may be altered. The most extreme form of a risk may be losses incurred which can significantly reduce or wipe out the initial investment. But the higher the uncertainty of an investment, the higher is the prospect of its returns, such as investing in high level investments of HSBC. In addition to the inherent risk associated with all economic activity, there are specific risks which effect investment an individual has made in HSBC. The extent of their effect may be ascertained by the type of investment, however all modes are effected by them to some extent (these are investment-specific risks). Different types of risk in relation to different types of investment in HSBC bank are discussed below (Cooper, & Priestly, 2011, p.185).

Market Risk

The term market risk, or volatility risk, is the possibility of reduced gains or a loss on an investment due to its price movements. This type of risk generally applies to investments which are traded on an exchange or similar platform and where investments are generally unitized, such as equities, tradable bonds and debt securities, commodities, derivatives etc. The speculative aspect of these investments can at times surpass their intrinsic values. So, in case of HSBC bank market risk is associated with the investment in bond since the bond prices fluctuates as a result of changes in interest rates as well as inflation rates (Evans, 2000, p.9).

Credit Risk

Credit risk assesses the possibility that the borrowing institution or government may not be able to meet its debt obligations in whole or parts. Corporate bonds generally have a higher risk and are rated investment-grade, similar to products offered by banks, insurance companies etc. In addition, securities can also be rated as Junk-grade, which implies high returns with a high probability of default. So, if an individual invests in the HSBC then the investor assumes the credit risk of an investor, which in this case would be a HSBC bank (Smith, Walter, & DeLong, 2012, p.305).

Sovereign Risk

Legislative risks pertain to the possible change in the law's surrounding investments, specific to investment type or industry, and the probability that such a change could give way to a downside on such ...