Risk
Definition

Risk is when the investor has the fear of loss
of his investment or expecting the desired return cannot be attained. Risk
measures the uncertain situation in which investor is going to invest to gain a
return on his/her investment.   

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Types
of Risk and Uncertainty in a business

All types of risks fall under two
categories:

a.      
Systematic Risk and

b.     
Unsystematic Risk

Systematic risk,
is a risk that prevailed in the whole system. It’s the kind of risk that covers
the complete market and any segment of the market. Every investment that is
made in the market will have this risk, for example risk of instability in the
government, risk of inflation, terrorism and war. In systematic risk a
business/company or industry it is almost impossible to be protected. A
business cannot avoid from this systematic risk.

Unsystematic
risk also called specific risk or residual risk. For a business/company and for
a specific industry it is unique risk. For example company court cases, strikes
from employees and any reduction in stock. Through diversification a business/company
can avoid and reduce unsystematic risk.

Following are the types of risks under
these two categories:

1.      
Credit Risk

2.      
Country Risk

3.      
Political Risk

4.      
Interest Rate Risk

5.      
Foreign Exchange Risk

6.      
Market Risk

7.      
Inflation Risk

 

Uncertainty
in Business

Uncertainty occurs
when the future is unknown.  When uncertainty
is there, the results/outcome can be completely unknown of any event and measuring
of these outcomes cannot be done. In this situation a business don’t have any
history/background information about the event.  

Uncertainty
becomes more complex when it remains for a longer period of time and it is a
difficult task to resolve issues in that situation and productivity is also
reduced.