Inflation risk or purchasing power risk arises because of the variation in the value of an asset’s cash flows due to inflation, as measured in terms of purchasing power. For example, if an investor purchases an asset that produces an annual return of 5% and the rate of inflation is 3%, the purchasing power of the investor has not increased by 5%. Instead, the investor’s purchasing power has increased by 2%. Inflation risk is the risk that the investor’s return from the investment in an asset will be less than the rate of inflation.
Common stock is viewed as having little inflation risk. For all but inflation protection bonds, an investor is exposed to inflation risk by investing in fixed-rate bonds because the interest rate the issuer promises to make is fixed for the life of the issue.
Sophisticated criminal organizations operate that specialize in copying the electronic details of the credit card. When someone pays a restaurant bill it rarely occurs to him or her that while the restaurant is getting authorization a restaurant worker is copying the details of the card. Low paid service workers can find this a useful supplement to their wages, provided the risks are low. This can be done using an electronic reading device about the size of a cigarette packet.
A more sophisticated development involves breaking into a point-of-sale device and placing a more advanced reader into the device. The reader is left in place for a period of time and then removed allowing details of all of the cards that have been used for purchases to be extracted. These details can be sent electronically anywhere in the world and then transferred to cloned cards. These cards can then be used until the skimmed cards are identified and blocked. Banks also have to cope with remote scanning devices placed in proximity to ATMs and used to attempt to obtain details of cards and related passwords used in these machines.