Seminar paper from the year 2000 in the subject Economics – Case Scenarios, grade: 1, 7 (A-), UNITEC New Zealand (Business Studies), language: English, abstract: Risk in financial markets becomes a major issue regarding financial transactions between parties in the market. ‘Risk in finance relates to the uncertainty of both the amount and timing of the future cash flows of a business or project’. (Anonymous, no year)
It occurs when financial decisions have to be made with an amount of uncertainty about the pay-off of the financial transaction. This is because of insufficient knowledge about the other party involved in the transaction, which is called incomplete or asymmetric information. This lack of information makes it difficult to decide accurately and creates a problem on two fronts, before and after the transaction. (Mishkin, 2001, p. 34-35, 187)
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