5.02 Types of Risk

"I can describe types of risk & explain ways to handle risk"


Risk is the possible of incurring loss

Economic Risk

Economic risk is the chance that macroeconomic conditions like exchange rates, government regulation, or political stability will affect an investment, usually one in a foreign country; it results in financial loss


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Non-Economic Risk

Non-Economic risk is embarrassment or inconvenience without a financial impact
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Pure Risk

Pure risk is situation where there is a chance of either loss or no loss but no chance of gain


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Speculative Risk

offers the chance of gain or loss
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Controllable Risk

Controllable risk is when conditions can be controlled to lessen the chance of harm
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Insurable Risk

Insurable risk meets the criteria of an insurance company for coverage
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Uninsurable Risk

Uninsurable risk is a hazard or condition that has either a high likelihood of loss, or in which the insurance would be considered against the law


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Examples of each type of risk:

Risk- Developing cancer from smoking cigarettes

Economic Risk- A central bank may raise interest rates and may result in economic conditions impacting an investment

Non-Economic- Asking someone out on a date

Pure Risk- An earthquake hitting your house, in California

Speculative Risk- A company purchases shares or invest in stock

Controllable Risk- If you are giving birth and go to the hospital verses doing it at home

Uncontrollable Risk- For heart disease are age, race, gender, and heredity

Insurable Risk- Having liability insurance on your car

Uninsurable Risk- Receiving insurance on your stock investments

Ways that businesses manage risk:

Avoid- decide to not engage in the risky activity

Transfer- Insure the risk

Insure- arrange for compensation in the event of damage to or loss of

Assume- to do the risky activity with no consequences