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1) What are the three types of risk facing parties any financial transaction? Explain using examples

1. Market Risk: The risk that the price of the financial security will move adversely because of overall market movements.
2. Idiosyncratic Risk: The risk that the price of the financial security will move adversely because of risks specific to the security or issuer.
3. Counter-Party/transaction/liquidity Risk: The risk that the counter-party or intermediary will not honor his/her obligations (e.g., buy back a short sale at a price close to market) expected or agreed upon....

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