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Different Types of Business Risks

This is a discussion on Different Types of Business Risks within the General Business forums, part of the Business category; Hello Friends 1) Internal Risks are those risks which arise from the events taking place within the business enterprise. The ...

  1. #1
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    Default Different Types of Business Risks

    Hello Friends

    1) Internal Risks are those risks which arise from the events taking place within the business enterprise.

    The various internal factors giving rise to such risks are:-

    o Human factors:- They may result from strikes and lock-outs by trade unions; negligence and dishonesty of an employee; accidents or deaths in the industry;incompetence of the manager or other important people in the organisation,etc.
    o Technological factors:- They may result in technological obsolescence and other business risks.
    o Physical factors:- They include the failure of machinery and equipment used in business;fire or theft in the industry; damages in transit of goods, etc.

    2) External risks are those risks which arise due to the events occurring outside the business organisation. Such events are generally beyond the control of an entrepreneur.

    The various external factors which may give rise to such risks are :-

    o Economic factors:- They result from the changes in the prevailing market conditions.They may be in the form of changes in demand for the product, price fluctuations, changes in tastes and preferences of the consumers and changes in income, output or trade cycles.
    o Natural factors:- are the unforeseen natural calamities over which an entrepreneur has very little or no control.They result from events like earthquake, flood, famine, cyclone, lightening, tornado,etc.
    o Political factors:- have an important influence on the functioning of a business, both in the long and short term.

    Have a nice day

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    Default Re: Different Types of Business Risks

    Hi

    Operational risk is different from all other risks. It is typically defined by a variety of international sources, including government agencies, quasi-governmental bodies, professional organizations, and consulting firms, as the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. There is no expected reward or return on investment, like one would expect from taking market or credit risk. The only “reward” from successfully managing or mitigating an operational risk is the reduction of a potential loss.

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    Default Re: Different Types of Business Risks

    @ Interest Rate Risk is the risk that the relative value of a security, especially a bond, will worsen due to an interest rate increase. This risk is
    commonly measured by the bond's duration.

    @ Credit risk is the risk of loss due to a debtor's non-payment of a loan or other line of credit (either the principal or interest (coupon) or both)

    @ Liquidity risk arises from situations in which a party interested in trading an asset cannot do it because nobody in the market wants to trade that asset. Liquidity risk becomes particularly important to parties who are about to hold or currently hold an asset, since it affects their ability to trade.

    @ Volatility risk in financial markets is the likelihood of fluctuations in the exchange rate of currencies. Therefore, it is a probability measure of
    the threat that an exchange rate movement poses to an investor's portfolio in a foreign currency. The volatility of the exchange rate is measured as standard deviation over a dataset of exchange rate movements.

    @ Operational risk1 is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.

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    Default Re: Different Types of Business Risks

    Hi

    When you hear the words "investment risk," what first comes to mind? If you're like most people, you think of the possibility of losing money in stocks. However, by paying too much attention to this type of risk, you may end up changing your investment strategy and ultimately impeding progress toward your long-term goals.

    Of course, it's easy to see why so many investors focus on the risks involved with stocks - especially in the midst of a long bear market - when you see the prices of your equities falling.

    And yet, upon closer inspection, you may see the "actual risk" in a new light. It's certainly true that a stock's value can fall below the price you paid for it. On the other hand, you still own the stock - and until you sell it, your loss is only on paper. If you buy high-quality stocks and hold them for the long term, you can often overcome the effects of short-term volatility - and your paper loss may evolve into a pocketbook gain.

    Unfortunately, some investors don't take this long-- term perspective. Instead, daily or monthly price swings deter them from buying stocks, and they look for investments that offer less peril. But these "safe" investments carry their own types of risk, which, in their own way, can be every bit as dangerous as the chance of losing money in stocks.


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    Default Re: Different Types of Business Risks

    Hi


    1) Internal Risks are those risks which arise from the events taking place within the business enterprise.

    The various internal factors giving rise to such risks are:-

    o Human factors:- They may result from strikes and lock-outs by trade unions; negligence and dishonesty of an employee; accidents or deaths in the industry;incompetence of the manager or other important people in the organisation,etc.
    o Technological factors:- They may result in technological obsolescence and other business risks.
    o Physical factors:- They include the failure of machinery and equipment used in business;fire or theft in the industry; damages in transit of goods, etc.

    2) External risks are those risks which arise due to the events occurring outside the business organisation. Such events are generally beyond the control of an entrepreneur.

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    Default Re: Different Types of Business Risks

    Hi
    What are the different types of risks? There a number of differing types of risk that can affect your investments. While some of these risks can be reduced through a number of avenues - some of them simply have to be accepted and planned for in any investment decision. On a macro (large scale) level there are two main types of risk, these are systematic risk and unsystematic risk.

    • Systematic risk is the risk that cannot be reduced or predicted in any manner and it is almost impossible to predict or protect yourself against this type of risk. Examples of this type of risk include interest rate increases or government legislation changes. The smartest way to account for this risk, is to simply acknowledge that this type of risk will occur and plan for your investment to be affected by it.
    • Unsystematic risk is risk that is specific to an assets features and can usually be eliminated through a process called diversification (refer below). Examples of this type of risk include employee strikes or management decision changes.

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    Default Re: Different Types of Business Risks

    Hi

    There are mainly three types of Risks:
    1) Credit Risk
    2) Operational Risk
    3) Market Risk
    Other Risks associated with an organisation are:
    Liquidity Risk, Systematic Risk , Unsystematikc Risk,

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    Strategical Risk, Etc.

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    Default Re: Different Types of Business Risks

    Hi
    The types of risk your business faces

    The main categories of risk to consider are:

    • strategic, for example a competitor coming on to the market
    • compliance, for example responding to the introduction of new health and safety legislation
    • financial, for example non-payment by a customer or increased interest charges on a business loan
    • operational, for example the breakdown or theft of key equipment

    These categories are not rigid and some parts of your business may fall into more than one category. The risks attached to data protection, for example, could be considered when reviewing both your operations and your business' compliance.


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    Default Re: Different Types of Business Risks

    Hello,

    The main categories of risk to consider are:

    • strategic, for example a competitor coming on to the market
    • compliance, for example responding to the introduction of new health and safety legislation
    • financial, for example non-payment by a customer or increased interest charges on a business loan
    • operational, for example the breakdown or theft of key equipment

    Thank You
    These categories are not rigid and some parts of your business may fall into more than one category. The risks attached to data protection, for example, could be considered when reviewing both your operations and your business' compliance.

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    Default Re: Different Types of Business Risks

    Hello,

    You know very well that the world of business is dynamic. How do you handle uncertainty risk? The future is uncertain and what seemed to work very well yesterday is not a guarantee that it works today. Things change any time and the changes may bring opportunities or miseries in your businesses.
    Planning alone cannot completely free us from risks. Many businessmen get it wrong that if they plan well, their businesses are completely protected from uncertainty risk. Of course, there are some losses that you cannot control.
    Thank You

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    Default Re: Different Types of Business Risks

    mainly there are two types of risks systematic and unsystematic risk.. systematic risk is the risk that cannot be reduced or predicted in any manner and it is almost impossible to predict or protect yourself against this type of risk. Examples of this type of risk include interest rate increases or government legislation changes. The smartest way to account for this risk, is to simply acknowledge that this type of risk will occur and plan for your investment to be affected by it.

    Unsystematic risk is risk that is specific to an assets features and can usually be eliminated through a process called diversification.. under this there r some risks that are-

    business, financial, liquidity, exchange rate,country and market risks..

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    Default Re: Different Types of Business Risks

    Hi
    systematic risk is the risk that cannot be reduced or predicted in any manner and it is almost impossible to predict or protect yourself against this type of risk. Examples of this type of risk include interest rate increases or government legislation changes. The smartest way to account for this risk, is to simply acknowledge that this type of risk will occur and plan for your investment to be affected by it.

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    Default Re: Different Types of Business Risks

    There a number of differing types of risk that can affect your investments. While some of these risks can be reduced through a number of avenues - some of them simply have to be accepted and planned for in any investment decision. On a macro (large scale) level there are two main types of risk, these are systematic risk and unsystematic risk.

    • Systematic risk is the risk that cannot be reduced or predicted in any manner and it is almost impossible to predict or protect yourself against this type of risk. Examples of this type of risk include interest rate increases or government legislation changes. The smartest way to account for this risk, is to simply acknowledge that this type of risk will occur and plan for your investment to be affected by it.
    • Unsystematic risk is risk that is specific to an assets features and can usually be eliminated through a process called diversification (refer below). Examples of this type of risk include employee strikes or management decision changes.

    Micro Risk Levels

    While the above risk types are the macro scale levels of risk, there are also some more important micro (small scale) types of risks that are important when talking about the valuation of a stock or bond. These include:

    • Business Risk - The uncertainty of income caused by the nature of a companies business measured by a ratio of operating earnings (income flows of the firm). This means that the less certain you are about the income flows of a firm, the less certain the income will flow back to you as an investor. The sources of business risk mainly arises from a companies products/services, ownership support, industry environment, market position, management quality etc. An example of business risk could include a rubbish company that typically would experience stable income and growth over time and would have a low business risk compared to a steel company whereby sales and earnings fluctuate according to need for steel products and typically would have a higher business risk.
    • Liquidity Risk – The uncertainty introduced by the secondary market for a company to meet its future short term financial obligations. When an investor purchases a security, they expect that at some future period they will be able to sell this security at a profit and redeem this value as cash for consumption - this is the liquidity of an investment, its ability to be redeemable for cash at a future date. Generally, as we move up the asset allocation table - the liquidity risk of an investment increases.
    • Financial Risk - Financial risk is the risk borne by equity holders (refer Shares section) due to a firms use of debt. If the company raises capital by borrowing money, it must pay back this money at some future date plus the financing charges (interest etc charged for borrowing the money). This increases the degree of uncertainty about the company because it must have enough income to pay back this amount at some time in the future.
    • Exchange Rate Risk - The uncertainty of returns for investors that acquire foreign investments and wish to convert them back to their home currency. This is particularly important for investors that have a large amount of over-seas investment and wish to sell and convert their profit to their home currency. If exchange rate risk is high - even though a substantial profit may have been made overseas, the value of the home currency may be less than the overseas currency and may erode a significant amount of the investments earnings. That is, the more volatile an exchange rate between the home and investment currency, the greater the risk of differing currency value eroding the investments value.
    • Country Risk - This is also termed political risk, because it is the risk of investing funds in another country whereby a major change in the political or economic environment could occur. This could devalue your investment and reduce its overall return. This type of risk is usually restricted to emerging or developing countries that do not have stable economic or political arenas.
    • Market Risk - The price fluctuations or volatility increases and decreases in the day-to-day market. This type of risk mainly applies to both stocks and options and tends to perform well in a bull (increasing) market and poorly in a bear (decreasing) market (see bull vs bear). Generally with stock market risks, the more volatility within the market, the more probability there is that your investment will increase or decrease.



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    Default Re: Different Types of Business Risks

    Hi
    The main categories of risk to consider are:

    • strategic, for example a competitor coming on to the market
    • compliance, for example responding to the introduction of new health and safety legislation
    • financial, for example non-payment by a customer or increased interest charges on a business loan
    • operational, for example the breakdown or theft of key equipment

    These categories are not rigid and some parts of your business may fall into more than one category. The risks attached to data protection, for example, could be considered when reviewing both your operations and your business' compliance.


    Thanks