Q.What is meant by business risk?

Business risk is the possibility of inadequate profits or even losses due to uncertainties or unexpected events. For example, a fall in demand (from changing tastes or competition) lowers sales and profit, and a shortage of raw materials raises costs and cuts profit.

Two types of risk exist:

• Speculative risk — carries both the possibility of gain and of loss, arising from changing market conditions (demand, supply, prices, fashion).
• Pure risk — carries only the possibility of loss or no loss, never a gain (fire, theft, strike).

The nature of business risk has clear features: risk is an essential, unavoidable part of every business (it can be minimised but not eliminated); it arises from uncertainty about future events; its degree depends mainly on the nature and size of the business (fashionable and large-scale businesses carry more risk); and, following the maxim "no risk, no gain," profit is the reward for risk taking.

Business risks arise from four kinds of causes: …