A risky security is a security that exposes its holder (investor) to market risk in terms of volatility as to price, rate, returns, repayment of principal amount, etc. However, the exposure to market risk, in all its different types, entails attachment of risk premium to such a security. Risky securities are also characterized by the existence of a credit risk and the possibility of experiencing price risks during periods of large selling volumes.
The key examples of risky securities include non-agency mortgage-backed securities (MBS), asset-backed securities (ABS), corporate debt, structured financial products (SFP), equities, and municipal bonds. Such securities are not supported by the creditworthiness of a government agency or public issuer, but rather are issued by private market players that are exposed to different degrees of market risks.
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