Question 7: Explain the concept of business risk and its causes.
Answer:
Business risk refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. Causes of business risks are as given:
1. Natural causes: Human beings have little control over natural calamities like flood, earthquake, lightning, heavy rains, famine, etc. they result in heavy loss of life, property and income of business.
2. Human causes: Human causes include such unexpected events like dishonesty, carelessness or negligence of employees; stoppage of work due to power failure; strikes, riots; management inefficiency, etc.
3. Economic causes: These includes uncertainties relating to demand for goods, competition, price, collection of dues from customers, change to technology or method of production, etc. Financial problems like rise in interest rate for borrowing, levy of higher taxes, etc. also come under this type of causes as they result in higher unexpected cost of operation of business.
4. Other causes: These are unforeseen events like political disturbances, mechanical failures, such as the busting of boiler, fluctuations in exchange rates, etc. which lead to the possibility of business risks.
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