Types of Risk
POBF 5.02
Risk
The possibility of incurring a loss
Ex: failure to have experience
Economic risk
The chance that conditions will affect an investment, usually one in a foreign country.
Ex: exchange rates, government regulation, or political stability
Non-economic risk
A type of risk that may result in the embarrassment or inconvenience without financial impact
Ex: a traffic accident
Pure risk
A type of risk that is a threat of a loss without an opportunity for gain.
Ex: severe weather
Speculative risk
A type of risk that offers the chance to experience gain or loss.
Ex: investing your money in a new business
Controllable risk
A type of risk that occurs when conditions can be controlled to lessen the chance of harm.
Ex: Train employees to be alert
Uncontrollable risk
A type of risk that cannot be controlled or reduced by actions.
Ex: a sudden hailstorm affecting a farmer's crops
Insurable risk
A type of risk that meets the criteria of an insurance company for coverage.
Ex: Storm, damage and theft
Uninsurable risk
A type of risk that the possible amount of loss is simply upredictable.
Ex: Setting us
Ways that businesses manage risk
- Avoid
- Transfer
- Insure
- Assume