Question

Discuss the major risks that a business may face, and at least one peril that might give rise to a loss for each.

Answer 1

Answer: Risk- It is the uncertainty and occurring of an event in future that may be dangerous.

Types of Business Risk- Risk is mainly of four types:

1. Strategic risk- This risk is related to new entrants in the market because of them, company may have to change its policies and strategies to compete with the rivals in the market. A bad business policy may lead to loss for it. Example: Telecom companies decrease the cost of mobile plans so as to compete with each other and work at lower margins.
2. Compliance or regulatory risk- Local, state or central Government may change and the same may come with new legislation and laws. A bad Government policy may lead to higher taxation for the company. Example: Introduction of Goods & Service tax (GST).
3. Financial risk- This risk may arise due to non-payment of funds, customers may become bad debts, there may be default in repaying the company's dues. Example: Interest rates in market may change. A bad credit policy of company may lead to more bad debts.
4. Operational risk- This risk arises during the normal course and operations of business. A poor internal control may lead to several internal problems. Example: Theft, lower revenue and profit