CONTROL RISK Definition

CONTROL RISK is the risk that material error in a balance or transaction class will not be prevented or detected on a timely basis by internal controls.

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INTEREST RATE RISK results from increases and decreases in bond prices caused by changes in interest rates. When interest rates rise, the prices of bonds fall to compensate for the higher level of income demanded by investors. Bonds that carry less than the new market rate of interest must sell for lower prices. For example, if an investor purchases a bond at par value ($1,000) with a 7% coupon and interest rates rise to the point where the same bond later yields 9%, the bond will decline in price to the point where its yield to maturity is equivalent to the yield to maturity on a 9% current coupon. In other words, the investor will earn the prevail­ing market rate of 9%- by buying a bond priced at par with the 9% coupon, or by buying the bond at a discount to par with a 7% coupon.

HOLDING COMPANY is a company which owns or controls other companies. (Control can occur through the ownership of 50 per cent or more of the voting rights or through the exercise of a dominant influence.).

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