Fundamentals of Finance_Sommers_Date_032210

Fundamentals of Finance_Sommers_Date_032210 - risk...

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risk mitigation – how to reduce potential risk 2 Types of Risk: 1) Systematic Risk o Any company doing business is subject to some risk factors, most of which cannot be removed, examples: Inflation Interest rates; if they increase, they increase universally Weather; if it snows a lot, no one goes out so there are no customers or employees if the store is closed, they could lose money from this Retail/food businesses that rely on walk-in customers don’t get revenue Hurricane Katrina shut down tons of the economy and is still recovering 2) Unsystematic Risk o Specific to the particular business or industry Ex: Banks have theft and robbery and Gas/electric can catch on fire Both types of business do everything they can do to mitigate the risk o Can be solved/mitigated Business Risk: Every type of business has a different type of risk Geographic Risk: Where you make or sell something o Ex: the store Sunsations in Ocean City – a beach shop so it’s only located near
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Fundamentals of Finance_Sommers_Date_032210 - risk...

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