Risk

Meaning :

Risk is defined as the possibility that financial outcomes may deviate from expectations, often indicating a chance of loss or uncertainty. It is inherent in all

investments, loans, and business activities due to varying market conditions, price  fluctuations, interest rate changes, and economic factors.

Example : 

For instance, when you invest in the stock market, you may experience losses  if share prices unexpectedly decline, demonstrating the concept of risk.

How to Understand : 

Risk represents uncertainty; it indicates that outcomes may not align with your plans.

An investment might not deliver the anticipated returns, a borrower might fail to repay a loan, or an asset might not be easily sellable.

Understanding risk equips you to prepare and choose safer investment options.

Importance :

Recognizing risk helps investors assess how much they can safely invest without risking significant losses.

It aids businesses in avoiding operational and financial losses, enhancing overall stability.

Banks utilize risk assessment procedures before approving loans to mitigate potential  defaults.

Effective financial planning depends on a thorough understanding of risk levels across  various investments.