Question 13: What is business risk? What is its nature?
Answer:
Risk implies uncertainty of profits or danger of loss due to the chance of loss due to some unforeseen events in future. It refers to the chance of loss on account of unfavourable or unpredictable happenings. Risk is the possibility of loss arising out of future uncertainties. Risk occurs when there is an adverse deviation from desired or expected outcome. According to wheeler, risk is the chance of loss. It is the possibility of some unfavourable occurrence.
In every risk, there exists a possibility of loss which may or may not be measurable. The person or organisation exposed to the risk may or may not be aware of the possibility of loss. Every risk arises from a ‘peril’ or contingency and it is magnified by a ‘hazard’. A peril creates the risk while a hazard influences the degree of risk. For instance, fire is a peril which creates a chance of loss. For example, the petrol stored in a building is the hazard which increases the possibility of loss.
Nature of business risk:
a. Business risks arise due to uncertainties.
b. Risk is an essential part of every business.
c. Degree of risk depends upon the nature and size of business. d. Profit is the reward of risk taking.
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