Rajasthan Board RBSE Class 11 Business Studies Notes Chapter 4 Trade Risk and Uncertainty
Venture Capital
- The government has created venture capital fund to provide the required capital to convert their abstract ideas and techniques into concrete form.
- At present, the government and private banks and various companies of finance market arrange capital for Business.
- The investor companies not only provide equity capital, but also provide support in running the business, production management, marketing and sales management.
Credit Rating
- Credit Rating is also called credit worthiness assessment or risk assessment of Investment. Credit ratings establish a link between risk and return.
- India was among the first countries to set up a credit rating agency in 1988.
- The first mercantile credit agency was set up in New York is 1841.
- Since 1970, a number of credit rating agencies have been set up all over the world, including countries like Malaysia, Thailand, Korea, Australia, Pakistan, etc.
- The credit rating agencies of the world are recognised for credit rating the economies of different countries. These agencies are Fitch Reading, Moody’s Investors Service and Standard and Poor. All of these are American agencies.
- CRISIL, ICRA and CARE are three Indian Credit Rating agencies.
- CRISIL was established in the year 1987.
- In India, Securities Board of India regulates these CRAs.
Important Definitions
Definition of Risk
- Franknitto said, “Risk is a measurable uncertainty”.
- According to Boune and Kurtz, “Risk is the possibility of loss or damage”.
Trade Risk and Uncertainty Class 11 RBSE Notes Important Terms
• Economic Activity — The activities that are done in order to earn money are called economic activities.
Example — workers working in a manufacturing unit.
• Risk — Risk is the possibility of occurrence of uncertainty or unfavaourable situations.
• Net Risk — Type of situations, in which the possibility of loss is 100% and no possibility of profit is there.
• Speculative Risk — Type of risk in which there is an equal chance of incurring profit and loss.
• Economic Risk — The risks which directly affect the monetary and profit-earning activities of business.
• Liberalization — Liberalization means making the rules and regulations more generous and flexible to increase the economic growth of the country and to make the economy strong and durable.
• Privatization — The transfering of business, industry from public to private ownership is called privatization.
• Monetary Policy — It is an important part of economy. It is the process by which the monetary authority of India controls the value of money.
• Social Environment – The socio-economic assumptions that prevail in the country is called social environment. The harmonious behaviour towards each other is an important part of the environment.
• Credit Rating — Credit Rating is also known as the assessment of credit or ratings. It works as an axis between Risk and Profit.
CRISIL – Credit Rating and Information Service India Limited.
ICRA – Investment Information and Credit Agency.
CARE – Credit Analysis and Research Limited.
Major Points
Risk
- In Arabic language, the word ‘Risk’ means earning money for livelihood.
- The intent of risk is having possibility or is uncertain. It is the forecast of risk. Types of Risk
1. In Insurance business, risk is of two types – (l) Pure Risk, (ii) Speculative Risk.
2. The type of Risk in which the business suffers loss only is called Pure risk.
3. Speculative risks are the kind of risks is which the possibility of incurring both profit and loss is equal.
4. Every business can have two types of risks
- Economic Risk
- Non-Economic Risk Economic Risks
- Economic Risks are those risks which directly affect the monetary and profit—earning activities of business.
Trade Risk and Uncertainty
- In case the state of currency and capital is not good, the risk of arranging the funds increases.
- Due to liberalization and privatization, the market-place competition gets increased.
- The monetary policy of the country effects business risk both unfavourably and favourably.
- Nation’s economic income, the level of economic growth, livelihood, transfering power of currency, business cycle affects risk directly.
Non – Economic Risks
- These risks affect revenue and monetary activities in an indirect manner.
- Temperature, Rain, Moisture and Fluctuation of cold climate can affect the demand and supply of business products.
- There is a direct affect of population, age, gender, growth rate and literacy rate on business activities.
- Risk related to environmental balance affects various business activities
- More of political disturbances or state control increases the risk in business activities.
- A business has to work under human hope, fear and aspiration, choices, priorities, world views, otherwise it would have to face a high risk.
Risk Management
- The first step in risk management is to identify the risk, that whether this risk is related to market area or political and social environment.
- After identifying the business risk, their intensive scrutiny is done. This second step is known as Risk Analysis. For this, all the possibly required information is gathered, and on the basis of collected information, important points are highlighted.
- In the third step of risk management, the evaluation of risks is carried out.
- After this, in the last step, the decision to bear the risk is taken. It is important to note that all the business risks can’t be eliminated, but on priority basis, steps can be taken to control them.