Conducting business is risky due to the fact that the
environment in which it operates is dynamic in nature and keeps on
changes, it is never static. Some of the key risk are price risk,
credit risk and financial risk, these can be defined as
follows:
- Price risk: It refers to the risk of price volatility in some
of the essential commodities on which business is based upon, for
example an oil producing company faces the risk of oil prices
volatility which directly impacts profit as well as losses of the
organization.
- Credit risk: It refers to the risk of loss of credit which is
owed by the company with others. For example, the risk of trade
receivables, due to reasons beyond control of the organization,
such credit may not be paid by the debtors which creates a credit
risk for the organization.
- Pure risk: It refers to the risk that can only result in losses
to the company, usually such risk are those which is caused due to
natural factors like earthquake, bad weather, fire etc.