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Risk implies future uncertainty about deviation from expected earnings or expected outcome

Finance

Risk implies future uncertainty about deviation from expected earnings or expected outcome. The major risks faced by banks and related financial institutions include credit risks, interest rate risks, market risk, and operating and liquidity risks. The other risks include residual, dilution, settlement, compliance, concentration, country, foreign exchange, strategic, and reputational risks. How does risk differ from uncertainty?

  • Give two instances of situations where

(a) there is uncertainty but no risk

(b) there is uncertainty as well as risk.

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Risk is different from uncertainty because risk will mean that there are probability related to loss of certain profits and investments and probabilities and the outcomes are known in advance whereas uncertainty are unknown future events and outcome as well as probability are unknown.

Risk can be measured but the uncertainty cannot be measured.

Risk of uncontrollable whereas uncertainty is non controllable in nature.

A) uncertainty related to a future recession but there is no risk because it is not known.

B) litigation which is under review by the court and there is risk that unfavourable outcome will come and outcome is not known in advance so there is uncertainty.

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