What is business risk? What is its nature?



Q.8:- What is business risk? What is its nature?

 

Answer:-



The term ‘business risk refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. Business risks are of two types: speculative and pure. Speculative risks involve both the possibility of gain as well as the possibility of loss’ Speculative risks arise due to changes in market conditions, changes in prices or changes in fashion and tastes of customers. Pure risks involve only the possibility of loss or no loss. The chances of fire, theft or strike are examples of pure risks. Nature of business risks can be understood in terms of the following characteristics
(i) Business risks arise due to uncertainties.
(ii) Risk is an essential part of every business.
(iii) Degree of risk depends mainly upon the nature and size of business.
(iv) Profit is the reward for risk taking.