Question

Explain the causes of business risk.

Answer 1

The following are the various causes of business risk.

(a)Natural causes: Unforeseen natural calamities such as earthquake, flood and famine cause heavy and irreplaceable losses to a business. The business risk that comes from natural factors is beyond the control of businesses.

(b) Economic causes: These causes are related to the uncertainties associated with changes in competitors’ policies, price change and change in consumer preferences.

(c) Human causes: These causes are related to the actions of human beings. Among the human causes of business risk are carelessness, strikes and riots.

(d) Other causes: Besides the causes mentioned above, there are a few unpredictable events that cause business risk—for example, political disturbances, exchange-rate and interest-rate fluctuations and budget amendments.