Types of Risk
Business Risk can be of two types: Pure Risks and Speculative Risk
1. Pure Risk
Pure risk refers to Business risks that are uncontrollable by humans and result in a loss or no loss with no chance of financial gain. Pure risk situations include fires, floods, and other natural disasters, as well as unexpected incidents, such as terrorist actions or untimely deaths.
Risk managers handle risk in four ways: they minimize, avoid, accept, or transfer it. Many forms of pure risk are dealt with by getting insurance coverage for the possible loss, so transferring the risk to an insurance provider.
2. Speculative Risk
Speculative risk is a type of Business risk that, when taken, might result in an unpredictable amount of gain or loss. All theoretical risks are decided consciously and are not only the result of uncontrollable events. Speculative risk differs from pure risk in that there is a chance of both a gain and a loss.
Since an investor has no way of knowing whether an investment will be a spectacular success or a complete disaster, nearly all investing techniques include such speculative risks. Contract options are an asset that carries both investing risk and risk you can cover.