Life is all about risk and we all take risks every day. Without taking risks in life, one may not make gains. So, it is important that we take calculated risks that would yield us good returns. Moving forward, firms and individuals face different kinds of risk in their day-to-day operations depending on the nature of their businesses.
The various risks we experience includes:
General Economic Risk
This refers to that type of risk which arises from uncertainties as to the future course of the general economy. A depression or recession always leads to lose of income by many individuals due to shorter hours of work, lower wages/ salaries, unemployment and lower profits for business firms. Also, changes in technology can equally have significant impact on business firms. For example: the reduction in the demand for mechanical calculators could be traced to the development of electronic computers.
This is also known as the operating risk and refers to those factors that are peculiar to an industry or type of business that introduce uncertainty into the investment and financing decisions because they decrease the deviation of the actual outcome or benefits from that which was expected.
Business risk may result from changes in the general conditions that lead to unexpected decline in earning ability of most investment. Business risk may be either internal or external. It is internal if it arises from within the firm itself. Example is inefficient management of material and human resources. On the other hand, if the risk is outside the control of the firm, it is said to be external. Examples are government regulations, changes in general economic conditions and the likes.
This refers to the risk that a failure or impairment of the market for a particular financial security or asset. This impairment would further cause that financial security or asset not to be marketable (illiquid) or marketable only at less than its fair price. For example, if the Nigeria Stock Exchange or that of other countries fails, it will cause a serious market risk to investors and holders of various quoted securities.
These risks and many more cannot be avoided in business because there are bound to happen. What is rather important is knowing how to position one's self or business such that it doesn't crash.
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