To define exactly the meaning of risk premium, We can say that it is the premium that a certain issuer of any debt has, compared to another issuer of a debt that is considered as a reference that has a lower risk.
Within a business, or any job in general, has certain variations depending on the organization where it is carried out. All companies have the probability that one of their employees has an accident or relapses into illness due to the activities that must be carried out within the company.
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This is the reason why it is important that they can implement controls and various measures to reduce all these possible risks. These need to be consistent with the type of activity carried out by employees.
Great importance must also be given to employers who must cover the risk premium of each of the employees.
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In this article you will find:
What is the risk premium?
The risk premium it is a financial determination, which despite the fact that experts in financial systems know how to handle it, has been of great influence in the financial crisis and has not ceased to be persistent. Above all, when climbing positions and it becomes prevalent today, being an alert to the fear that it will increase again.
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The risk premium also known as country risk, is the difference in the interest requested on a debt issued by a country that has assets with higher risk, with respect to the debt issued by another country That is risk-free, therefore, is the premium or additional interest that a country pays to be able to finance itself in the markets compared to another country.
Due to this, if a country has a high risk premium, investors knowing that they are facing a greater risk, will demand higher interest rates and thereby purchase its debt to compensate for the loan of money to a country that is not reliably financial
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In this sense, a country with a high risk premium finds it more difficult to finance itself, whereas the investor, despite assuming the risk, obtains in the end a greater financial benefit.
Senses of the definition of the risk premium
This concept in general allows two very particular senses such as the following:
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- Theoretical risk premium: It is the minimum interest that the risk price pays and an objective probability is based on the calculation.
- Negotiated or subjective risk premium: It is the value estimated by the market procedure before the real value of the theoretical risk premium, that many times it has probabilities that are unknown, so it is not possible to know its estimate real.
Types of risk premium
According to the class, the risk premium can be classified depending on the class, that is, as follows:
- Class I: percentages of 0.54355
- Class II: percentages of 1.13065
- Class III: 2.59840 percentages
- Class IV: percentages of 4.65325
- Class V: 7.58875 percentages
How is the risk premium calculated?
To calculate it, uses a fairly simple formulaIt is only necessary to have knowledge of the interest rate offered by a certain debt and to know the interest rate of the reference. This formula is determined as follows:
Risk premium = i Country with the highest risk - i Reference country
Where i: It is the interest rate offered by the country's debt.
Risk premium classification
The risk premium can be classified in the following ways:
Job risk share
These have successive incidents, which makes it easy to pigeonhole into two factors:
- Through the loss ratio it has.
- Through turns or activities carried out within the company.
Fines
It is important to keep an adequate control regarding the level of claims of the company, as this can help to determine all the information correctly, otherwise it may originate wrong risk premiums, generating complementary payments later.
In any case, that there are differences in the fees, in addition to the charges for accessories or any fine, can be dire for the business, resulting in tax credits, which can go to court in many cases.
First-time registrations
At the time when the IMSS registration is made for the first time as a patron, or during changes in activity, it is important to seek to do so according to the regulations dictated by the laws.
Who is in charge of making the classifications?
In the case of risk premiums, the same companies are in charge of making a self-classification, it must be based as indicated in the catalog of activities. On the other hand, they can also be classified according to the economic division by which each group or fraction is governed.
What effects does the risk premium have on the economy?
This type of premium can have certain effects on the economy. Because German public debt is determined to be the most reliable, most other countries assume their investments in such debt, since it is based on the rule that the lower the risk, the higher its profitability in the long run term.
In addition, this type of risk has had a great effect on bank finances in terms of the incorporation of bonds. If banks get low-interest loans, they also end up making low loans, in order to get investments from other companies that help increase consumption.
Finally, the public coffers manage to benefit from lower the risk premium, as it is related to low funding. In this sense, the Government has the opportunity to pay a lower amount when financing itself, leading to the benefit to use their savings to get the interest invested in public investments that increase the productivity.
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