Risk

Meaning :

Risk refers to the possibility that financial outcomes may differ from expectations, often indicating the chance of loss or uncertainty. It exists in all forms of investments, loans, and business activities due to fluctuating markets, prices, interest  rates, and economic conditions.

Example : 

For example, investing in the stock market can lead to losses if share prices fall  unexpectedly, illustrating the concept of risk.

How to Understand : 

Risk signifies uncertainty and tells you that things may not go as planned.

This means an investment may not yield the returns you anticipated, a borrower may  default on a loan, or an asset may be difficult to sell.

Understanding risk helps you prepare and make more informed choices about safer options.

Importance :

Recognizing risk assists investors in determining how much they can safely invest without incurring losses.

It supports businesses in avoiding operational and financial setbacks.

Banks conduct risk assessments before granting loans to ensure repayment.

All financial planning is based on understanding the levels of risk involved.