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Types Of Investment Risks And Their Sources

Satisfactory Essays
Q.7: DEFINE RISK. DISCUSS THE TYPES OF INVESTMENT RISKS AND THEIR SOURCES. ALSO EXPLAIN THE CAUSES OF RISK.
ANS.: INTRODUCTION:
Risk is explained theoretically as the fluctuation in returns from a security. A security that yields consistent returns over a period of time is termed as “riskless security” or “risk free security”. Risk is inherent in all walks of life. An investor cannot foresee the future definitely; hence, risk will always exist for an investor. Risk is in fact the watch word for all investors who enter capital markets.

Risk refers to the possibility that the actual outcome of an investment will differ from its expected outcome. More specifically, most investors are concerned about the actual outcome being less than the expected outcome. The wider the range of possible outcome, the greater the risk.

DEFINITION:

 According to Fischer and Jordon,

Risk is the, “Variability of return around the expected average is thus a quantitative description of risk.”

 Dictionary meaning of risk:

“It is the possibilities of losses or injury, the degree of probability of such loss. Risk is the composed of the demand that bring in variations in return of income.”

KEY DIFFERENCES BETWEEN RISK AND UNCERTAINTY:

1. Risk is able to be measured while the uncertainty is not able to be measured.
2. Risk can be calculated while the uncertainty can never be counted.
3. You are capable of make earlier plans in order to avoid risk. It is impossible to make prior plans for the
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