Question Bank : Pure And Speculative

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Question 1 (A) Pure and Speculative Risks-: Pure Risks are absolute risks which are governed by only two possible outcomes where there is either a complete loss or no change in the existing circumstance at all. They are usually characterized by a small chance of occurring where the probability of the event associated with the risk is small. E.g.: A tornado occurring is small, but either there is complete loss of an area or it may remain undamaged. Speculative Risks are mainly explained as a gamble on risk where the event may lead to a loss or may also lead to a gain. E.g.: Investing in risky shares is a Speculative Risk (Teale, 2013). (B) Diversifiable and Non- Diversifiable Risks-: Non – Diversifiable or Systematic risks affect events that are vulnerable to economy wide risks that affect aggregated outcomes on a broad base including financial markets. They occur due to market structure and dynamics leading to uncertainty faced in all areas of economy. E.g.: Changes to federal policies, government structure, natural disasters etc. Diversifiable or Unsystematic risks are only specific to one industry, area or company and do not have wide repercussions. They can be easily diversified to mitigate or reduce losses through better strategies. E.g.: Diversifying investment portfolio can reduce loss from a failed stock (Teale, 2013). Question 2 (A) Injury to a child climbing up shelves in store:- In this circumstance, Super Grocer is not liable to provide compensation for the

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