Risk and Major Sources of Risk
Thursday, August 6, 2009
Risk:
Risk is an unexpected variablity of asset prices and earning. There are two major sources of risk;
1. Business Risk:
is the risk that a firm is subjected to during daily operations and includes the risks that result from business decisions and the business environment. Business risk includes Strategic Risk and Macro Economic Risk.
Stretegic risk reflects risks inherent in the decision of senior management setting a business strategy. Macro Economic Risk is inherent with the overall economic condition of the region and it has an impact over firm's operation and sales. One of the examples of business risk is that the economy will slow and demand for a product will fall.
2. Financial Risk:
is the result of a firm's financial market activities. Like interest rate movement after the issuance of floating rate bonds. In this case the issuing firm will be negatively impacted if market reates increase.
Risk is an unexpected variablity of asset prices and earning. There are two major sources of risk;
1. Business Risk:
is the risk that a firm is subjected to during daily operations and includes the risks that result from business decisions and the business environment. Business risk includes Strategic Risk and Macro Economic Risk.
Stretegic risk reflects risks inherent in the decision of senior management setting a business strategy. Macro Economic Risk is inherent with the overall economic condition of the region and it has an impact over firm's operation and sales. One of the examples of business risk is that the economy will slow and demand for a product will fall.
2. Financial Risk:
is the result of a firm's financial market activities. Like interest rate movement after the issuance of floating rate bonds. In this case the issuing firm will be negatively impacted if market reates increase.
Labels: Foundation of Risk Management, FRM, Risk
posted @ 9:24 AM,
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