Understand the " Risks "

Every people define the “risk” differently. And not surprisingly, even professionals impute the meanings in accordance to their trade. For example, Investors look at risk as chance of loss or gain in an investment….

Risk – “uncertainty about financial loss from an exposure”.

Loss – “unpleasant outcome of risk”.

We can classify the “Risks” into few types:-

• Fundamental risk

è    risk affects the whole economy (hyperinflation)

• Particular risk

è    risk affect only individuals (robbery, fires)

• Speculative risk

è    potential gain / loss in investment

• Dynamic risk

è    risk resulting from economy changes and may cause financial loss to people (rapid changes of technology)

• Static risk

è    losses occur even no changes in the economy (floods, dishonesty)

• Pure risk

è    either a loss or no loss, the dollar value involve if a loss occurs & the probability of loss occurring (insurance)

Hence, if we would like to handle the risk, we should understand the nature of risk which nevertheless has an element of uncertainty and unpleasant potential outcome.