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Risk
What is Risk?
In the book with the title 'The Cambridge Dictionary of Statistics', Everitt (1998) defines that Risk is as a term often used in medicine for the probability that an event will occur.
In investment terms, Risk is understood as the chance that an investment's actual return will be different than expected. Investopedia (2016) indicates that Risk refers to the possibility of losing some or all of the original investment. In management, risk needs to be measured in order to make decisions. therefore, Investopedia gives different versions of risk which are usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment. It is confirmed that a high standard deviation indicates a high degree of risk (Investopedia, 2016).
In business terms, Risk refers to a probability or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action - an action of serving or intended to pre-empt bad things (BusinessDictionary, 2016)
In finance terms, BusinessDictionary (2016) defines Risk as the probability that an actual return on an investment will be lower than the expected return. It also states that Financial risk is divided into categories such as Basic risk, Capital risk, Country risk, Default risk, Delivery risk, Economic risk, Exchange rate risk, Interest rate risk, Liquidity risk, Operations risk, Payment system risk, Political risk, Refinancing risk, Reinvestment risk, Settlement risk, Sovereign risk, and Underwriting risk.
Why does Risk matter?
References and useful links
Everitt, B.S. (1998). The Cambridge - Dictionary of Statistics. United Kingdom: Cambridge University Press
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