I. UNDERSTANDING CONCEPT OF RISK:
Risk means the uncertainty associated with any activity or event or investment. Risk can beknown or unknown also can be controllable or non controllable.Risk is the possibility of variance in result than that of expected.Total Risk comprises of systematic and unsystematic risk. Systematic risk means risk occursdue to the factors which are external to the organisation & generally are uncontrollable e.g.Market Risk. Unsystematic risk means risk which occurs due to the internal factors of theorganisation & generally is controllable e.g. financial risk.
Classification of risk
There are three major types of risk.1.
Market risk 2.
Operational risk 3.
1. Market risk
Today we are passing through a phase where it is not very difficult to define market risk.Anybody will agree that the world is passing through harsh crises and at this point of timeany decision right from an investment decision to an expansion decision of an enterprises will
impeding risk. Academically this general risk is nothing but ‘market risk’.
Market risk is not very new concept; rather it has been stayed with the market itself in oneform or other. Market risk is the risk which is common to an entire class of assets andliabilities. Market risk can-not be wished away by diversification it is also calle
Market risk is the potential for loss due to change in market factors such as interest rates,exchange rates liquidity.
Types of market risk
A) Currency risk B) Interest rate risk C) Liquidity risk