Question

One of the risks a business faces is the risk of accidental loss, including the possibility of loss or no loss. This category of risk is defined as

a. pure risk
b. strategic risk
c. operational risk
d. credit risk

Answer 1

The risk of accidental loss, including the possibility of loss or no loss, is known as pure risk, involving events over which there is little control and is often addressed through insurance.

Step-by-step explanation:

The risk of accidental loss, where there is a possibility of either loss or no loss, is known as pure risk.

This type of risk is distinguished by its occurrence of economic events or circumstances over which individuals or businesses have very little control.

Examples include natural disasters, wars, and economic downturns leading to massive unemployment.

These risks are often the subject of insurance policies, as people and corporations seek to mitigate the impacts of unforeseen, detrimental events that have a low probability of occurrence but can have devastating consequences.

Pure risks are typically insurable because they involve clear loss scenarios and can be spread across risk groups, although classifying individuals or entities into these groups can be controversial and fraught with complexities, such as moral hazard and adverse selection.

Answer 2

The category of risk defined as the risk of accidental loss, including the possibility of loss or no loss, is known as pure risk. (Option a)

Step-by-step explanation:

Pure risk refers to a type of risk where there are only two possible outcomes: loss or no loss. This contrasts with speculative risk, where the possibility of gain is also present. In the context of business, accidental losses such as property damage, liability claims, or natural disasters fall under the category of pure risk. This type of risk is inherent in business operations and is typically managed through risk mitigation strategies, insurance, and other risk management practices.

Understanding and categorizing risks are crucial aspects of effective risk management for businesses. Pure risk is a fundamental concept in this regard, representing situations where the potential outcomes are limited to loss or the absence of loss. Businesses employ various risk management techniques to identify, assess, and mitigate pure risks to protect their assets, reputation, and overall financial well-being. Insurance is a common tool used to transfer the financial impact of pure risks to an insurer, helping businesses navigate unexpected losses without severe financial consequences.

In summary, pure risk in business involves the potential for accidental losses with only two possible outcomes: loss or no loss. Recognizing and managing pure risks are integral components of a comprehensive risk management strategy that enables businesses to navigate uncertainties and protect their interests.(Option a)