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Risk Management (Economics)
A long-term management strategy for dealing with unforeseen or uncontrollable contingencies that may cause harm. To manage risk effectively, an assessment must be made of potential risk. Risk assessment is, therefore, an integral component of risk management, although it is normally problematic to evaluate and quantify speculative risk.
Individuals, households, and businesses face risk in economic transactions and unpredictable earthly occur rences. Risks are associated with changing asset values or losses, raising capital, natural disasters, health, theft, and accidents. Economic agents with foresight must then anticipate uncontrollable adverse occurrences and adopt long-term safeguards to minimize the cost of their adversities.
Profit-maximizing companies incur risks in the process of raising capital to finance their growth. As such, risk management is inherently part of corporate finance. The cost of ...