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Risk types

 Risk types
Financial Risk The risk that a company will not be able to survive as a going concern.
This risk has a number of elements: Credit Risk The risk that customers fail to pay their bills on time (or at all!) Market Risk The risk of changes in the value of a company’s financial assets (e.g. shares, bonds) Liquidity Risk The risk of running out of cash because inflows are not arriving in time to pay outflows! Currency Risk The risk of changing foreign exchange rates in the future. This could lead to:
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● Transaction Risk – change in the value of a future receivable or payable Translation Risk – change in the value of the company’s Balance Sheet if year-end exchange rates have changed Economic Risk – change in the competitiveness of the company due to longer term changes in exchange rates Interest Rate Risk The change in the value of investments and loans as a result of changing interest rates. This is the risk of breaching laws and regulations and being fined (or even closed down) as a result. The cost is not necessarily just financial – the time taken in dealing with an investigation can be distracting to the Board.
It also creates reputation risk. Political risk The risk of operating in a particular country may be high. A change in government or sudden imposition of new laws could make it difficult for the company to operate. Technology risk The risk of technological failure, which could be caused by weather, water damage, poor ventilation (leading to overheating) … or simply a badly designed system that fails, or is corrupted.
With the ever growing use of IT, a lack of computer controls could lead to a virus, or staff with a grudge deliberately placing false transactions on the system.
Email or internet access could lead to data corruption. Health and safety risk Apart from the risk of injury to employees (who may refuse to work unless the risk is dealt with), poor health and safety can affect the reputation of a company. Environmental risk The risk of environmental factors affecting the operations of a business. For example:
● Repeated bad weather leading to farmers having a poor harvest
● Heavy rain and floods have resulted in Worcestershire County Cricket Club having to close their ground … and look at finding a new home
● If global warming continues, the tourism industry is likely to see big changes, with traditional beach resorts becoming too hot and tourists seeking new locations where previously temperatures were not tempting enough.
It is also the risk of a business affecting the environment itself. Whether companies should have to worry about such things is considered in more detail in . Fraud risk The risk of fraud by employees, customers, suppliers etc. There are many different types of fraud, and many reasons why someone may carry it out.
Legal and Compliance Risk
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