Types of Risk

POBF 5.02


- A possibility of incurring a loss

-Ex: Failure to be skilled & have experience

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Economic Risk

- Results in financial loss

- Ex: American Company invests 1,000,000 in a manufacturing plant, aside from the business risk it's making the plant profitable, then is exposed to econimic risk.

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Non-Economic Risk

-May result in embarrassment or inconvenience without a financial impact.

-Ex: Black Market, Farmer consuming his crops, growing veggies in the backyard

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Pure Risk

- Threat of a loss without an opprtunity for gain

- Ex: Earthquake hitting your house

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Speculative Risk

-Offers the chance of gain and loss

-Ex: When you buy stock in the market , it could go up or down.

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Controllable Risk

-Occurs when conditions can be controlled to lessen the chance of harm

-Ex: High blood pressure, High cholesterol, Tobacco & Alcohol use

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Uncontrollable Risk

-Cannot be controlled or reduced by your actions

-Ex: Age, Gender, & Race

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Insurable Risk

-Meets the criteria of an insurance company for coverage

-Ex: Fire insurance, storm, damage, & threat

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Uninsurable Risk

-A hazard or condition that has either a high likelihood of loss

-Ex: Reputational risk, Regulatory risk, & trade secret

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Ways that businesses manage risk

1) Avoid

2) Transfer

3) Insure

4) Assume