An investor should be aware of various types of risk:
1. Firm-specific/unsystematic risk - this type of risk is specific to a firm and is affected by news-worthy changes within the firm. It can be diversified away.
2. Systematic risk - this is undiversifiable risk that affects the whole market and cannot be avoided.
3. Default/credit risk - bondholders face the risk that an issuer might be unable to pay its interest and principal payment obligations.
4. Interest rate risk - this risk directly affects bonds in that a change in interest rates can alter the value of an investment.
5. Foreign exchange risk - investors need to note that currency exchange rates can alter the price of assets as well.