Guide to Analysing Companies

Ring
There are two meanings.
1 The spot on the floor of an exchange where trades are fi-
nalised. Not to be confused with the pit where traders first
attract each other’s attention.
2 A group of investors or dealers acting (illegally) in concert.
Their aim is usually to manipulate prices to their advantage. A
notorious (and ultimately unsuccessful) ring at the end of the
20th century was created by the Hunt family of Texas. Their
aim was to corner the silver market. 
Rising star
A company whose credit rating has been raised from non-
investment grade (or junk) to investment grade. This is
good news for a company that wants to borrow in the capital
markets because, in general, the higher its credit rating, the
lower is the cost of its money. The opposite of a fallen
angel.
R
RISING STAR
259
03 Essential Finance 10/11/06 2:22 PM Page 259

---

Risk
The chance of making a loss. Investors are rewarded for taking
risks; in general, the higher the risk, the greater is the reward. In-
vestors who play safe (only buying US government bonds, for
example) are said to be risk-averse. In financial markets, risk
takes several forms.
 Exchange-rate risk. The danger of borrowing in one
currency and lending in another, or of having receipts
denominated in one currency and payments in another.
 Interest-rate risk. The danger from, say, taking
deposits at a fixed rate of interest and making
loans at a floating rate. It also refers to the danger
that a fixed-income security will fall in value
because of a rise in interest rates.
 maturity risk. The danger that arises when payments
are due in seven days and receipts are not coming in for
eight or more.
 credit risk. The danger that an outstanding bond or
other form of debt will not be repaid as and when it is
due. credit ratings awarded to borrowers by
independent agencies (such as Standard & Poor’s or
Moody’s Investors Services) aim to assess this risk.
 Market risk. The danger that the market will move
against a borrower or a company planning an issue of
securities, so foiling its plans.
 Underwriting risk. The danger that a new issue of
securities will not be taken up by investors and that the
investment bank or broker underwriting the deal
will be left with the unwanted securities.
 Political risk. The danger of a change of government in
the country of the borrower. The change may compel the
borrower to renege on the debt or somehow to reduce its
value.
To be alive at all involves some risk.
Harold Macmillan