Types of Risk

pntalarico
Mind Map by , created over 5 years ago

Topic 2

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pntalarico
Created by pntalarico over 5 years ago
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Types of Risk
1 Financial risks
1.1 Risks associated with the financial position of the firm and generally result from the concept of leverage
1.2 Leverage
1.2.1 The degree to which the business uses non-equity capital compared to equity capital
1.2.2 Leverage = (non-equity capital) / (equity capital)
1.2.3 Financial risk (both positive and negative) to a business increases with the use of non-equity capital
2 Business risks
2.1 Risks associated with production and marketing components of the business
2.2 Market or price risks

Annotations:

  • Relates to the uncertainty in markets and prices for both inputs (purchased for the production process), and outputs (products and services for sale by the firm)
2.3 Production risk

Annotations:

  • Is the variability inherent in the firm's production process
2.4 Technology risks

Annotations:

  • These relate to the uncertainty caused by rapid technological change
2.5 Human risks

Annotations:

  • Humans are a key source of risk.  Humans are prone to mistakes, misinterpretation, and health problems
  • The fact that humans tend to change their goals and objectives often adds to the uncertainties facing the firm
2.6 Legal and social risks
2.7 Government policy risk

Annotations:

  • In addition to the monetary, fiscal and trade policies, Commonwealth and State governments have various policies - both general and industry specific

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