Risk and Uncertainity in the Decision Making
RISK AND UNCERTAINITY IN THE DECISION MAKING
1. Introduction Risk is everywhere. It is not hard to find risk. In almost every thing that we do and situations we face, there is a corresponding risk behind it. However, we cannot just run from it. All we can do to move forward is to manage this risk, or if not, at least lessen the risk involve. We can never tell what will happen unless we try to overcome it. Whether we like it or not, the world is such an unpredictable place. Moreover, as long as future uncertainties exist, which might cause adverse effects for individuals, the world remains to be a place in which risk must be managed.
2. Classifications of Risks Facing the Business Risk is defined as any source of randomness that may adversely affect a person or corporation. In connection with this, risk management is the reaction to such risk by individuals or businesses as they attempt to make sure that the risks in which they are exposed to are the risks in which they think they are actually being exposed to and want to be exposed.
3. Market Risk Market risk arises from the event of a change in some market-determined asset price, reference rate, or index. The said events define market risk further into two categories. The first event-type defines market risk based on the asset class type whose price changes impact the exposure in question. One common form of asset class-based market risk is the risk on interest rate, or risk that the balance sheet assets, liabilities, and off-balance sheet items of the firm (including its derivatives) will change in value as interest rates change. Other asset class-driven classifications of market risk include the changes in the value of an exposure attributable to exchange rates’ fluctuations, commodity prices, and values of equity.Risk factors are any market-determined price, rate, or index value that impacts the flow of cash of an exposure. The discount rate comes into play when we are talking of the asset’s
1. Introduction Risk is everywhere. It is not hard to find risk. In almost every thing that we do and situations we face, there is a corresponding risk behind it. However, we cannot just run from it. All we can do to move forward is to manage this risk, or if not, at least lessen the risk involve. We can never tell what will happen unless we try to overcome it. Whether we like it or not, the world is such an unpredictable place. Moreover, as long as future uncertainties exist, which might cause adverse effects for individuals, the world remains to be a place in which risk must be managed.
2. Classifications of Risks Facing the Business Risk is defined as any source of randomness that may adversely affect a person or corporation. In connection with this, risk management is the reaction to such risk by individuals or businesses as they attempt to make sure that the risks in which they are exposed to are the risks in which they think they are actually being exposed to and want to be exposed.
3. Market Risk Market risk arises from the event of a change in some market-determined asset price, reference rate, or index. The said events define market risk further into two categories. The first event-type defines market risk based on the asset class type whose price changes impact the exposure in question. One common form of asset class-based market risk is the risk on interest rate, or risk that the balance sheet assets, liabilities, and off-balance sheet items of the firm (including its derivatives) will change in value as interest rates change. Other asset class-driven classifications of market risk include the changes in the value of an exposure attributable to exchange rates’ fluctuations, commodity prices, and values of equity.Risk factors are any market-determined price, rate, or index value that impacts the flow of cash of an exposure. The discount rate comes into play when we are talking of the asset’s