fm23 7 - 3. Demand risks are those associated with the...

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Mini Case: 23 - 8 c. What is corporate risk management? Why is it important to all firms? Answer: Corporate risk management is the management of unpredictable events that have adverse consequences for the firm. This function is very important to a firm since it involves reducing the consequences of risk to the point where there should be no significant adverse effects on the firm’s financial position. d. Risks that firms face can be categorized in many ways. Define the following types of risk: (1) speculative risks; (2) pure risks; (3) demand risks; (4) input risks; (5) financial risks; (6) property risks; (7) personnel risks; (8) environmental risks; (9) liability risks; and (10) insurable risks. Answer: 1. Speculative risks are those that offer the chance of a gain as well as a loss, such as buying an ownership share in a company. 2. Pure risks are those that only offer the prospect of losses, such as a product liability or malpractice lawsuit (from the defendant's standpoint).
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Unformatted text preview: 3. Demand risks are those associated with the demand for a firm's products or services, such as new products developed by competitors. 4. Input risks are those associated with a firm's input costs, including materials and labor. 5. Financial risks are those that result from financial transactions, such as interest rate and currency exchange rate risks. 6. Property risks are associated with destruction of a firm's productive assets, including the threat of fire, floods, and riots. 7. Personnel risks are risks that result from human actions, such as theft and fraud. 8. Environmental risks include those risks associated with polluting the environment. 9. Liability risks are connected with product, service, or employee liability, such as costs incurred as a result of improper actions by employees or damages resulting from defective products. 10. Insurable risks are those that typically can be covered by insurance....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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