Definition
of Risk:
The term risk has different meaning in
different situations. However, in most cases the term risk is defined as:
“It is used to
described any situation where
There is uncertainty about what outcome will
occur”
In business and Finance and even statistics,
risk is used to indicate possible variability in outcomes around some expected
values. Risk is greater in one situation when:
o
Expected greater loss
o
Uncertainty (variability around the expected loss)
1-Direct risk
2-Indirect
risk
Direct
risk is direct loss of the asset (expected) like the amount of asset that
would cause of destruction of asst. E.g. steeling/destruction of productive asset
would cause loss the amount to which it purchase.
Indirect
risk is a type of risk that arises as the consequences of direct risk. E.g.
if the productive asset goes down, it means there is low order taking, low
production and low sales which would result in hitting the firm profitability
and its stake in the market.
Indirect losses would be:
o
Loss of normal profit
o
Extra operating expenses
o
Higher cost of funds and foregone investment
o
Bankruptcy cost
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