The dictionary meaning of risk is the possibility of loss or injury; In risk, the probable outcome of all possible outcome are listed. Once the events are listed subjectively, the derived probabilities can be assigned to all the possible events. Risk consist of two components Systematic & Un-systematic risk.
Types Of Risk Risk Systematic Risk Unsystematic Risk
Interest Rate Risk
Purchasing Power Risk
Internal External Fluc in Sales R&D Personnel Mgmt Fixed Cost Single Prod
Social & Regu Fac
Minimizing Risk Exposure
Market Risk Protection
The Investor has to study the price behavior of the stock.
The investor has to gauge the standard deviation & beta of a particular stock.
Further the investor should prepare to hold the stock for period of time
Protection against Interest Rate Risk
To hold the investment up to maturity.
The Investor can also buy treasury bills & bonds of short maturity.
To invest in bonds with different maturity date.
Protection against Inflation
The bonds with fixed return can solve the problem.
Another way to avoid risk is to make an investment in short term securities.
Investment diversification can also solve this problem.
Protection against buis & fin risk
To analyze the strength & weakness of the industry.
Analyzing the profitability trend of the company is essential.
The financial risk should be minimized by analyzing the capital structure of the company.