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Pricing risk: using betas in investment appraisal

Article Abstract:

Companies and banks must 'price' risk in such a way that the discount rate used for net present value (NPV) analysis accurately reflects the risks being taken. There is a clear need to consider both return and risk in investment decisions. In NPV calculations, the discount rate used must be adjusted to account for the riskiness of the returns. With the capital asset pricing model, the risk that is significant is not the variance of the expected return in itself, but the repercussions of the investment for the riskiness of a diversified portfolio.

Models, Risk assessment

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The outlook for European monetary union

Article Abstract:

European monetary union was set out as a goal in the Treaty of Maastricht in 1991. Weaker currencies such as the Italian lira and pound sterling have since devalued. Convergence criteria necessary for implementing monetary union is not likely to be achieved by southern European economies. The UK has achieved convergence criteria but the government is not enthusiastic about monetary union. Union is possible but with a small group of countries from northern Europe such as Germany, the Netherlands, France and Luxembourg.

Economic policy, European Union, Monetary unions

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Section 13: sterling and the Exchange Rate Mechanism

Article Abstract:

The pound sterling lost considerable value against the German mark before it was withdrawn from the Exchange Rate Mechanism (ERM) in Sep 1992. Exchange rates are set according to the perceived value of a currency, and how much can be bought with it relative to other currencies. Some observers feel that sterling was overvalued for some time before its collapse, and was affected by long-term problems as well as those in operation in Sep 1992.

United Kingdom, Currency devaluation, Devaluation (Currency)

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