Name: Syed Shaheer Ul Hassan

Registration No: 17793

Classification of Risks
Systematic Risk
Systemic risk is due to the influence of external factors on the organization. Such factors are
usually beyond an organization's control. It is macro in nature as it affects many
organizations operating under similar streams or the same domain.it cannot be planned by
organization.
1. Interest-Rate Risk.
Interest-rate risk arises due to variability in the interest rates from time to time. It particularly
affects debt securities as they carry the fixed rate of interest.
Example:-
An investor holds a bond that has a 4% stated interest rate, and which was purchased for
5,000. The market interest rate then climbs to 5%. Since bond buyers can now gain a
better return elsewhere, the market value of the investor’s bond declines. In order to sell
it, the investor would have to accept a price lower than 5,000 because the buyer would
want to obtain an effective interest rate of 5%.
2. Market Risk
Market risk relates to consistent fluctuations in the trading price of a particular stock or
security. That is, it occurs as a result of an increase or decrease in the trading price of a
listed stock or security on a stock exchange.
Example:-
When you invest in financial stocks such as stocks and bonds, you are taking risks. In
general, investment risk is the uncertainty about returns. Actual returns may differ from
expected returns.
3. Inflationary risk
Inflation risk is the risk that the future real (post-inflation) value of an investment, asset,
or source of income will decrease due to unexpected inflation.
Example:-

Consider an investor holding a 1,000,000 bond investment with a 10% coupon. This
might generate enough interest payments for a retiree to live on, but with an annual 3%
inflation rate every 1,000 produced by the portfolio will only be worth 970 next year and
about 940 the year after that.
Unsystematic Risk
Non-systematic risk is due to the influence of internal factors that prevail within the
organization. Such factors are usually controllable from an organizational point of
view.is micro in nature as it only affects only a particular organization. You can plan so
that your organization can take necessary actions to mitigate risk (reduce impact).
1. Business Risk
The forces that create business risk can come from internal sources such as poor
management structure, bad reputation, theft or loss of talented employees. External
forces can also play a role such as increased prices of raw materials required for
production, increased competition, changes in customer demand, natural disasters, or
changes in government or market policies.
Example:-
When a business's direct competitor cuts down the prices of its products or services, thus
affecting the business originally positioned as a low-cost provider.
2. Operational risk
Operational risks are the business process risks failing due to human errors. This risk
will change from industry to industry. It occurs due to breakdowns in the internal
procedures, people, policies and systems.
Example:-
People risk, Political uncertainty, legal risk.
3. Financial Risk
Although all types of business risks have an impact on the business's finances, the
financial type, as the term suggests, means the risk of sudden financial loss. This may
arise due to changes in market conditions, providing credit to customers, and company
debt.
Example:-
An example of financial risk is selling your business's product on credit to 60 percent of
your regular customers. This puts your business at great financial risk due to the fact that
your customers may not or may not be able to pay for the services offered to them on
credit.