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SHAHEERA IMRAN (4088)

RUQAYYA NIAZI (4100)

WAJEEHA HAYAT(4066)

QAMAR-UN-NISA (3629)

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What Does Risk Mean?

The chance that an investment's actual return will be different than expected. Riskincludes the possibility of losing/gaining.

The probability that an actual return on an investment will be lower/higher thanthe expected return.

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Business Risk

Financial Risk

TYPES OF RISK

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BUSINESS RISK

Involves a company's strategic decisions other than finance.

Business risk measures the dangers of operational choices, suchas responses to competition from other firms or entering into a newproduct line or business sector.

Factors: Demand variability Sales price variability Input cost variability Ability to develop new products

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INTERNAL FACTORS OF BUSINESS

RISKS

The various internal factors giving rise to such risks are:-

Human factors

Technological factors

Physical factors

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EXTERNAL FACTORS OF BUSINESS

RISK

The various external factors which may give rise to such

risks are :-

Economic factors

Natural factors

Political factors

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BUSINESS RISK MANAGEMENT

Process that identifies loss exposures faced by an

organization & selects the most appropriate techniques

for treating such exposures.

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FINANCIAL RISK

Examines how a company's finances are structured

The additional risk placed on the common stockholders

as a result of the decision to finance with debt

Leverage increases shareholder risk

Leverage also increases the return on equity (to

compensate for the higher risk)

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FINANCIAL RISKS

Systematic risk

Unsystematic risk

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What Does Systematic Risk Mean?

The risk inherent to the entire market or entire marketsegment.

Also known as "un-diversifiable risk" or "market risk.

Interest rates, recession and wars all represent sourcesof systematic risk because they affect the entire marketand cannot be avoided through diversification. Whereasthis type of risk affects a broad range of

securities, unsystematic risk affects a very specific groupof securities or an individual security. Systematic risk canbe mitigated only by being hedged.

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What Does Unsystematic Risk Mean?

Company or industry specific risk that is inherent in each

investment. The amount of unsystematic risk can be reduced

through appropriate diversification.

Also known as "specific risk", "diversifiable risk" or "residual

risk".

For example, news that is specific to a small number of stocks,such as a sudden strike by the employees of a company you

have shares in, is considered to be unsystematic risk.