- The difference between the actual return on investment and expected return on investment is considered as the risk.
- Risk management is the identification of sources of risks, assessment of the risk, and controlling the exposure by developing the strategies to reduce the impact of the risk on the growth of the business.
- Worldwide most of the banking institutions adopt the Basel Accords for identification, assessment, and controlling exposure to credit, market, and operational risk.
Risk in finance and investment refers to the unfavourable outcome with an investment or financial asset.
Risk measures the exposure to potential loss which an investor has on a financial instrument.
Whenever we make investments in any financial security, we run the risk of, say, the market crashing, which would lead us to lose money by eroding the value of our investment.
The total risk on any investment is made up of two parts — systematic and unsystematic risks.
Risk can be measured by various metrics such as standard deviation of returns and liquidity of the asset class