Risk: Difference between revisions
imported>Administrator (CSV import) |
imported>Doug Williamson m (Spacing and category added 20/8/13) |
||
| Line 1: | Line 1: | ||
1. In the corporate finance context, risk refers to the variability of potential future returns. | 1. | ||
In the corporate finance context, risk refers to the variability of potential future returns. | |||
It is often quantified as the standard deviation of future returns. | It is often quantified as the standard deviation of future returns. | ||
It is often estimated by the standard deviation of <u>historic</u> returns, though this process is inherently error-prone when used for <u>forecasting</u> or risk management purposes. | It is often estimated by the standard deviation of <u>historic</u> returns, though this process is inherently error-prone when used for <u>forecasting</u> or risk management purposes. | ||
3. In a more general sense, risk refers to the unknown (or unknowable) nature of future outcomes involving, for example, market prices or market rates. | 2. | ||
In the Capital Asset Pricing Model, relevant risk is measured by beta. | |||
3. | |||
In a more general sense, risk refers to the unknown (or unknowable) nature of future outcomes involving, for example, market prices or market rates. | |||
4. | |||
The possibility of adverse effects resulting from changes in market prices or rates, or from changes in other general conditions in the market, or from other economic factors specific to the business (such as the failure of a key supplier). | |||
5. The possibility of an event occurring that will have an impact on the achievement of objectives. | 5. | ||
The possibility of an event occurring that will have an impact on the achievement of objectives. | |||
This includes both the upside opportunity and the downside hazard which could either move us towards or drive us away from achieving our objectives. Risk is measured in terms of impact and likelihood. | This includes both the upside opportunity and the downside hazard which could either move us towards or drive us away from achieving our objectives. Risk is measured in terms of impact and likelihood. | ||
No business can eliminate all risk, so risk has to be managed effectively. This is best done through a risk-aware culture. | No business can eliminate all risk, so risk has to be managed effectively. This is best done through a risk-aware culture. | ||
== See also == | == See also == | ||
| Line 31: | Line 50: | ||
* [[Tax risk]] | * [[Tax risk]] | ||
* [[Transfer risk]] | * [[Transfer risk]] | ||
[[Category:Risk_Management]] | |||
Revision as of 14:13, 20 August 2013
1.
In the corporate finance context, risk refers to the variability of potential future returns.
It is often quantified as the standard deviation of future returns.
It is often estimated by the standard deviation of historic returns, though this process is inherently error-prone when used for forecasting or risk management purposes.
2.
In the Capital Asset Pricing Model, relevant risk is measured by beta.
3.
In a more general sense, risk refers to the unknown (or unknowable) nature of future outcomes involving, for example, market prices or market rates.
4.
The possibility of adverse effects resulting from changes in market prices or rates, or from changes in other general conditions in the market, or from other economic factors specific to the business (such as the failure of a key supplier).
5.
The possibility of an event occurring that will have an impact on the achievement of objectives.
This includes both the upside opportunity and the downside hazard which could either move us towards or drive us away from achieving our objectives. Risk is measured in terms of impact and likelihood.
No business can eliminate all risk, so risk has to be managed effectively. This is best done through a risk-aware culture.
