Textbook Notes (368,149)
Canada (161,680)
Finance (362)
FIN 502 (69)
Joan Lobo (33)
Chapter 9

CFIN502- Chapter 9- Risk Management.docx

2 Pages
171 Views
Unlock Document

Department
Finance
Course
FIN 502
Professor
Joan Lobo
Semester
Summer

Description
CFIN502- Chapter 9- Risk Management DEFINING RISK  Speculative risk- loss and gain—uncertain amounts o EG buy lottery ticket—small chance of winning a lot of money and a big chance of losing the dollar you paid for it o Doesn’t mean gambling on something in the way that the term is used in common language o Has a probability of winning and a probability of losing o Generally those that you choose to accept rather than those that you encounter simply because if your circumstances  Pure risk- possibility of loss only o EG early death, disability, theft of your car o Ones that happen to us without is having mode a conscious choice to seek them out THE RISK MANAGEMENT PROCESS Step 1. Identifying the risk  General categories—personal, life and health; property; liability  Most Canadians think—risk of liability means 3 party liability insurance on a car o If you cause harm to another person with your car  Other liabilities could be just as material—required to ensure that your property does not pose a danger to a reasonable person  Rules governing this liabilities—common law torts  Limited companies also liable for their actions  Limited liabilities- investors are not responsible beyond the amount of money paid for investment  Incorporated businesses and professionals are personally liable without limits for all loses they cause—losses to customers, creditors, 3 party  Unlimited liability—most important reason why most small businesses incorporate o Otherwise the owners put not only their direct investment at risk but also virtually everything else they own Step 2. Evaluating the risk  Two criteria’s size of potential loss; frequency or probability of occurrences o Which risk you should avoid and which you can live with  Basic rule—risk is insupportable if it materially affects the family’s standard of living  Large and small terms of losses depends on the family’s resources  Probability of occurrences are not precisely defined—non if the events subject to risk management occur frequently Step 3. Controlling the risk  Avoidance- applies to actions where we have some choice in what we do  Separation- applies in few situations for families—much of their life is spent together o EG parent who travel on different planes—wont be killed in the same accident—leaving children without support o Useful in large organizations  Prevention or reduction of frequency o Reduce risk of disability or premature death with good nutrition, regular exercise, and preventive medication o Protect property—smoke detectors, bolts and locks, and preventive maintenance o Reduce likelihood of being sued for negligence by driving carefully and incorporating the family business
More Less

Related notes for FIN 502

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit