Inflation is the reason behind the loss of purchasing power. Inflation and interest rate risks are closely related … Related: inflation risk. The risk that a firm will be unable to meet its debt obligations. For most people, inflation seems to be the most worrisome. Also known as company-specific risk or unsystematic risk. Designed to purchase services, products or resources. Increases in the cost of living (that is, inflation) can erode the value of your retirement resources and what you can buy with that money — also known as its purchasing power. Inflation Risk (or Purchasing Power Risk) — The risk that general increases in the prices of goods and services will reduce the purchasing power of money, and likely negatively impact the value of investments. The risk, then, is that you may be able to buy less with a given sum of money in the future. Financial Management Assignment Help, What is purchasing power risk, Q. Purchasing power risk is the risk that the value of the money you invest will not keep up with inflation. Asset procurement and purchasing risk is the potential for failures of a procurement process. For instance, suppose this bond is worth $1000 and generates a 5% yield i.e. Purchasing power risk is the possibility that you will not be able to buy as much with your savings in the future. Purchasing Power Risk: How Equities Preserve Your Ability to Buy Ice Cream (and Other Things You Need) by Professional Financial Solutions | November 6, 2020 | Maximizing Investments This has been a very volatile year in the stock market, and with the election outcome uncertain and the pandemic unresolved, there may be more volatility still in store. In general, this risk is greatest with those investment alternatives with a set, guaranteed rate of return. What does Purchasing Power Risk mean? Assessing Your Purchasing-Power Risk (aka Inflation Risk) Assessing Your Purchasing-Power Risk (aka Inflation Risk) By Eric Tyson . Purchasing power refers to what you are able to buy with a given sum of money. So while CD's have a low investment risk, they have a high purchasing power risk. The amount of total risk that can be eliminated by diversification by creating a portfolio. Purchasing power risk – also known as inflation risk – is when the real interest rate, which accounts for adjusted inflation, shows the gain or loss in purchasing power. Variations in the returns are caused also by the loss of purchasing power of currency. The level of price increase (inflation) or decrease (deflation) has significant ramifications to retirees. What is It? A typical example would be a bond that generates a fixed rate of return. “Purchasing Power Risk” is the risk due to “a decrease in purchasing power of assets or cash flow” due to inflation. 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