Question
What is business risk. What is its nature?
Solution
Business risk implies uncertainty of profits or danger of loss or continuity of business due to some unforeseen events.It refers to the chance of loss on account of unfavourable or unpredictable happenings.
With every risk there is a possibility of loss which may or may not be measurable and the person or organization exposed to the risk may or may not be aware of the possibility of loss.
Business enterprises constantly face two types of risk:
With every risk there is a possibility of loss which may or may not be measurable and the person or organization exposed to the risk may or may not be aware of the possibility of loss.
Business enterprises constantly face two types of risk:
(i) Speculative
(i) Pure
Speculative risks involve both the possibility of gain as well as the possibility of loss.
Pure risks involve only the possibility of loss. Their occurrence may result in loss, whereas non-occurrence may explain absence of loss, instead of gain.
Nature of business risk:
(a) Business risks arise due to uncertainties.
(b) Risk is an essential part of every business.4
(c) Degree of risk depends upon the nature and size of business.
(d) Profit is the reward of risk taking.
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