Question

What is an example of an inflation risk?

Answer 1

Inflation risk, also called purchasing power risk, is the chance that the cash flows from an investment won't be worth as much in the future because of changes in purchasing power due to inflation.

Answer 2

Purchasing power risk is known as the inflation risk.

This type of risk arises when value of securities cash flow starts declining due to inflation (which we consider as purchasing power).

For example:

A man buys a bond investment worth RS. 1000000 with a 10 % coupon.

By this we can understand that the securities cash flow will be reduce because of rising inflation risk.