question_answer

6. Explain the concept of business risk and its causes.

Answer:

Ans.     The term "business risk' refers to possibility of inadequate profits or even losses due to uncertainties, e.g. changes in tastes and preferences of consumers, strike, increased competition, change in Government policy, etc. These are of two types: speculative and pure.

Causes of Business Risks:

1. Natural causes: The causes which are beyond human control, e.g. flood, earthquake, heavy rains, famine, etc.

2. Human causes: It includes carelessness or negligence of employees, e.g. theft, strikes, riots, misappropriation of cash and products, etc.

3. Economic causes: It is related to a chance of loss due to changes in market condition, e.g. fluctuations in demand and prices, competition, change in technology, etc.

4. Physical causes: Mechanical defects or failures which may also lead to losses, e.g. bursting of a boiler or machine, may cause death or destruction.

5. Other causes: These include unforeseen events like political disturbances, fluctuation in exchange rates, etc.