K.E.

S SHROFF COLLEGE OF ARTS & COMMERCE

A PROJECT ON
INTRODUCTION TO RISK MANAGEMENT

CLASS: TYBFM
SUB: RISK MANAGEMENT

SEM: 6 SEMESTER Year 2012-13

GUIDED BY: BHUVNESH SIR

TH

PREPARED BY:
SR.NO
01 02 03 04 05 06 07

NAME
ADROJA YOGITA MAKWANA NIRALI MEWADA AKASH RUPANI KINJAL SHAH SAMKIT TRIVEDI NEHA VAJA RIDDHI

ROLL NO
01 18 23 35 43 47 49

INDEX
SR NO TOPIC SIGN

1 2 3 4 5 6 7 8 9 10 11 12 13

What is risk Sources of risk What is risk management Risk management process Types of risk Risk and Return Risk v/s Gambling Speculation v/s Gambling Risk v/s Probability Risk v/s Uncertainty Case study Conclusion Bibliography

WHAT IS RISK?
Definition of 'Risk' The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment. Different versions of risk are usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment. A high standard deviation indicates a high degree of risk. Many companies now allocate large amounts of money and time in developing risk management strategies to help manage risks associated with their business and investment dealings. A key component of the risk mangement process is risk assessment, which involves the determination of the risks surrounding a business or investment. A fundamental idea in finance is the relationship between risk and return. The greater the amount of risk that an investor is willing to take on, the greater the potential return. The reason for this is that investors need to be compensated for taking on additional risk. For example, a U.S. Treasury bond is considered to be one of the safest (risk-free) investments and, when compared to a corporate bond, provides a lower rate of return. The reason for this is that a corporation is much more likely to go bankrupt than the U.S. government. Because the risk of investing in a corporate bond is higher, investors are offered a higher rate of return.

Sources of risk
hazard and perils are risk factors which eminate from different sources.a riot may arise from a social environment.the diffetent environments creates different risks to organisation and individuals.the sources of environment can be classified as follows. 1) Physical environment:-This is general risk and it is unavoidable and it is common to
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both individuals and organisation. The organisation should study the prevailing physical environment in terms of climatic condition, possibility of flood or drought, incidence of earthquake etc. 2) Technological environment:-The old technologies give way to new technolgies.Any upgradation in technology can affect the performance and efficiency in business.Technology is improving at a rapid pace.If the organisation and individuals do not adapt to or do not use it properly their survival and growth are stake. 3) Social environment:-It broadly covers the customers, habits, level of education, tastes and standard of living of the people in the society.Technology is leading to changes in cultural values.The ethical standard if living and social structure are also changing.These changes are posing increasing risk to business organisation. 4) Political environment:-This consist of the ideology of the government,bye laws, regulatory authorities and other agencies which command the activities of the individuals as well as the organisations.Changes in the above factors may affect the interest of the individual reorganisations thus leading to newer risks. 5) Economic environment:-Economic environment comprises of the national income, money supply, inflation and saving habits of the public, capital market , exports and imports policies, government expenditure. And nature of investment. Any changes to these influence the demand and supply, conditions of goods and services as well as the growth of the industry..

What is risk management?

Risk management is a two-step process - determining what risks exist in an investment and then handling those risks in a way best-suited to your investment objectives. Risk management occurs everywhere in the financial world. It occurs when an investor buys low-risk government bonds over more risky corporate debt, when a fund manager hedges their currency exposure with currency derivatives and when a bank performs a credit check on an individual before issuing them a personal line of credit. Definition Risk management is the logical development and execution of a plan to deal with potential losses The risk management process involves the following logical steps. 1. Determination of objective 2.Risk identification
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3.Risk evaluation 4. Selection of risk management techniques a. risk financing b. Risk control 5.implimentation of decision 6.evaluation and review

Because the conditions under which firms operate change, the risk management process has a necessity to be dynamic. All three elements of the process have therefore to be continuing reassessment and monitoring of the results.

A Risk Mangers believe that prevention is better than cure. It is better not to have suffered a loss than to suffer and collect under an insurance policy. Insurance does not compensate for all losses; for example, time spent dealing with the claim loss of client base and reputation. There is also a growing body of evidence to suggest that a significant proportion of firms never fully recover from the effects of a major loss and have to be wound-up within a short time even if fully insured. 1.Determination of objective : The first step for an organisation is to identify the objective of risk management policy which lays down the objectives.the objective may be classified into two broad categories i.e pre loss and post loss objective. 2. Risk Identification Risk Identification requires knowledge of the organisation, the market in which it operates, the legal, social, economic, political, and climatic environment in which it does its business, its financial strengths and weakness, its vulnerability to unplanned losses, the manufacturing processes, and the management systems and business mechanism by which it operates. Any failure at this stage to identify risk may cause a major loss for the organisation. Risk identification provides the foundation for risk management. The various methods of risk identification are: Checklist Method Financial Statement Method Flowchart Method On-site Inspections Interactions with Others Contract Analysis Statistical Records of Losses
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3. Risk Evaluation Risk Evaluation breaks down into two parts, the assessment of: the probability of loss occurring, and its severity The probability analysis tells us the various possibilities of the perceived scenarios for a given set of circumstances. The severity refers to the direct and indirect measurable impact of the scenarios being analysed. 4.Selection of risk management techniques:

Risk Financing:-When the risk exposure for an orgamsation exceeds the maximum limit that the organisation can bear, it becomes necessary to either transfer or reduce risk. However, there is cost involved in both of these exercises. If the method adopted is insurance, the consequential impact on taxes and profits also becomes important. Risk Financing, therefore, refers to the manner in which the risk control measures that have been implemented shall be financed. Risk Control:-Risk control covers all those measures aimed at avoiding, eliminating or reducing the chances of loss-producing events occurring, or limiting the severity of the losses that do happen. Here, one is seeking to change the conditions that bring about loss-producing events or increase their severity. Though some measures call for little more than common sense, often considerable technical knowledge is required, for which the risk manager will need to turn to experts in the particular field. Risk can be controlled either by avoidance or by controlling losses. Avoidance implies that either a certain loss exposure is not acquired or an existing one is abandoned. Loss control can be exercised in two ways. (a) One way is to enhance and monitor the level of precautions taken to minimise the losses due to exposures. (b) Another is to control and minimise the risk operations, internal risk control techniques include diversification and/or investments in getting information of loss exposures so as to control them.The internal risk control measures generally employed are (a) diversification and (b) investment in information. The operational measures fro risk control in an organisation includes(a) increased precautions and (b) reduced level of activity. It has to be recognised that in the long run an organisation will have to pay for its own losses. The primary objective of risk financing is to spread more evenly over time cost of risk in order to reduce the financial strain and possible insolvency
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which random concurrency of large losses may cause. The secondary objective is to minimise risk costs. Essentially an organisation can finance its risk cost in three ways: Losses may be charged as they occur to current operating costs; or Ex-ante provision may be made for losses, either through the purchase insurance or by building up a contingency found to which losses can be charged; or When losses occur they may be financed with loans, which are repaid over the next few months or years. 5. Implementation of decision: The organisation by now must have identified and grouped various risk into diffrent categories.the organisation has to prepare itself in term of administration and financial resources for e.g if a firm has decided to insure a particular risk them the implementation authorities go for identification of the insurance company,negotiate with it for writing of policies. 6. Evaluation and Review: Evaluation and review takes place from the point of view of identifying the loopholes and to check the extent to which the existing strategy has been successful in achieving its goal. The review process is an ongoin and continuos activity.

types of risk A) FINANCIAL RISK:1. Interest Rate Risk change in interest rate will impact price of bonds (or NCDs). There is negative relation between price of bond & interest rates if interest rate will increase price of bond will go down & vice versa. This risk can be reduced if you hold bonds till maturity. Interest rate risk also affects Bank Fixed

Deposit investor he was having Rs 5 Lakh & he invests at a prevailing rate of 9%. What will happen if interest rate increase to 10% he will be losing 1% interest.

2. Exchange rate risk-It is also called as exposure rate risk. It is a form of financial risk that arises from a potential change seen in the exchange rate of one country's currency in relation to another country's currency and vice-versa. For e.g. investors or businesses face an exchange rate risk either when they have assets or operations across national borders, or if they have loans or borrowings in a foreign currency. Eg;- If you invest in debt or equity of some other country you will face exchange rate risk. If some of your US investments earn 10% in one year in dollar terms but the same year dollar loose 2% in comparison to rupee your actual return will be 8%. NRIs are heavily impacted by this risk & they should make financial decision after considering it. 3. Liquidity risk:-Liquidity is a measure of how easy or hard it is to sell an asset. Cash is very liquid; a house is illiquid. Some small company shares can be easy to sell just log into your online broker and place the order but if you try to sell more than an expensive sofas worth, the price will plunge, which is another risk of poor liquidity. Money tied up for a year in a fixed rate bond is also illiquid, but its a known issue when you invest; the risk is that interest rates move against you, or that you need your money before the term is up. For example, consider a $1,000,000 home with no buyers. Thehome obviously has value, but due to market conditions at the time, there may be no interested buyers. In better economic times when market conditions improve and demand increases, the house may sell for well above that price. However, due to the home owners need of cash to meet near term financial demands, the owner may be unable to wait and have no other choice but to sell the house in an illiquid market at a significant loss. Hence, the liquidity risk of holding this asset. 4. Default risk:-Default risk is the risk of non recovery of sums due from out siders ,which may arise either due to their inability to pay or unwillingness to do so.this risk has to be considered when credit is extended to any party.
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E.gThe sudden failure of Lehman Brothers Holdings, Inc., (LBHI or Lehman Brothers) in mid-September 2008 is widely viewed as a watershed moment in the global financial crisis of 2007-2009. With over $639 billion in assets and $613 billion in liabilities, the Lehman Brothers bankruptcy was the largest in United States history.It eclipsed by nearly double the failure of Washington Mutual two weeks later. By any measure, the LBHI bankruptcy and the subsequent insolvency and bankruptcy filings by other Lehman Brothers entities globally were catastrophic and traumatic events for the worldwide financial markets. This was due in large part to Lehman Brothers extensive global footprint in the debt, equity, and derivatives markets 5. Market risk:-Market risk is associated with consistent fluctuations seen in the trading price of any particular shares or securities. That is, it is a risk that arises due to rise or fall in the trading price of listed shares or securities in the stock market. Eg;- many telecom companies shares have fallen due to 2G scams and new policy of auction. 6. Credit risk;- Some people dont pay the bills they promise. Nor do some companies. Even some countries fail to cough up. If youre a good credit risk, that means that banks and others think youll pay what you owe. If youre a sub-prime borrower, they generally dont unless you happen to want a mortgage on a shack in a swamp in 2003-2007. Credit risk is sometimes called default risk. 7. 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. Eg;- Sometimes, operating risks are predictable; for example, a farmer can prepare for a drought that would harm his/her harvest and therefore profits. On the other hand, risk from an employee's fraud is often impossible to anticipate. Consultancies often offer operating risk management, identifying and attempting to eliminate it as much as possible. 8. Inflation risk:-Also known as purchasing power risk,inflationary risk is the chance that the value of an asset or income will be eroded as inflation shrinks the value of a country's currency. Put another way, it is the risk that future inflation will cause the purchasing power of cash flow from an investment to decline. The best way to fight this type of risk is through appreciable investments, such as stocks or convertible bonds, which have a growth component that stays ahead of inflation over the long term. eg;- it is losing purchasing power of money. In 2011 you invest Rs 5 Lakh in debt & get Rs 10 Lakh in 2020. But your Rs 10 Lakh is not able to buy you the item which was available for Rs 4 Lakh in 2011.

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B) NON-FINANCIAL RISK:Defining a non-financial risk should be on comparative basis. Non-monetory would refer to anything that is not monetary or that which cannot be associated or viewed in money terms. A risk is anything that if it occurs, the resultant consequences thereof will be to the detriment of the benefactor. Therefore a non-financial risk is that which if it happens there won't be any monetory consequence. 1.Internal business risk:-The internal business risk refers to the degree of operational efficiency the management has with the unanticipated future. The systems adopted the decision making abilities, the ability of the management to visualize the future will all contribute to the internal business risk. To a great extent it is a controllable factor. The risk of losses that may arise due to the personnel can also be classified here. A loss may occur due to the resignation /death of a key individual. It may also arise due to the fraud perpetuated by the staff. Eg;- I. Loss by fire etc: There may be fire accident in the business and property is destroyed due to it. Sometimes the products traded or produced are fire prone and lack of precautions may cause an accident. This generally happens in coal mines, oil refineries, cooking gas centres etc. On the other hand, there may be a fire due to negligence on the part of employees or failure of equipment may also cause it. In all these cases the property is destroyed. II. Business Environment: The environment in business may be such that there is a possibility of loss because the things are not properly managed. Lack of effective control on cash transactions may cause misappropriation of cash or lack of stock control system may encourage theft of goods, etc 2.External business risk:-The external business risk is the result of external environment in which the business is in existence. It emanates from factors which are not within the control of the company. Delayed monsoon or fiscal policy or stability of
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government or any similar factors may have a bearing on the income earning capacity of the company. External Risks There may be factors outside the business which may bring risks. These factors or causes are generally beyond the control of the management. I. Natural Calamities: There may be natural calamities like earthquake, storm, floods etc. These causes cannot be precisely predicted and a business is always exposed to such risks. II. Competition: A business may suffer due to competition from other business undertakings. Some concerns might have introduced better methods of production and are able to reduce costs of production. The business will suffer if prices are reduced due to competition and in case the prices are kept the same, then goods will not be sold in the market because the customer will prefer to buy cheap goods. III. Price Fluctuations: The price fluctuations may adversely affect cost of materials, cost of materials, costs of other inputs, budget forecasts etc. Price fluctuations are generally influenced by the factors which are not in the hand of the businessman but he has to bear the risks arising out of such causes. IV. Change in Demand: There may be a change in demand for the products. Consumer tastes may change, new fashions may come in, likings or disliking for certain goods may cause a change in demand. A sudden change in demand may create a problem for disposing of the stocks. New methods of productions may be required to cope with the changing situation. This will cause unnecessary financial burden on the business. V. Government Policy: Risks may arise due to change in government policies. The rates of taxes may be increased, changes in imports and exports regulations may cause additional burden, some restrictions may be imposed on stocking of certain items, the production of certain goods may be taken by the government itself etc. The changes in policies may not only cause losses but may compel the business, in certain cases, to close down its production. So the causes mentioned above create uncertainties and bring risks to the business. 3.Marketability risk:-This is the risk of the assets of the firm not being readily marketable. The situation of having non- marketable assets may or may not be linked to the need for funds.When such assets are required to be sold due to the need for the funds, the non- marketability may lead to liquidty risk. Marketing risk can also take place because of selling at lower then expected prices due to competition, change in fashion or taste of consumer, leading to obsolenscence of products, political instability resulting in loss of exports, etc.
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4.Personnel risk:-Many industries are service industries which depend mostly on the quality of their staff for success. By and large, every company needs personnel to operate. The loss of an important/key employee due to resignation/ death/ sickness colud be a major risk to the performance of the company. A company could also incur heavy losses due to frauds committed by its staff. 5.Environmental Risk The risk that a certain business venture or activity will cause destruction to the surrounding natural environment. For example, if oil reserves were discovered in a national park, there would be the environmental risk that exploiting the reserves might harm or destroy some of the park's wildlife. While environmental risk implies some moral or at least reputational risk, it also carries economic consequences. A company with environmental risk often has to pay fees for exemptions from certain policies, and it is usually responsible for cleaning up the environment in case it causes a slow or sudden disaster. 6.Production risk:-The production may be disrupted due fires, floods etc. The firm may not be able to produce the budgeted price. the plant and machinery may not work efficiently or breakdown frequently affecting production. Raw materials may not be available may be in short supply. These are some of the risks due to the production irregularities. Eg: Production risks are the principal concern in the daily routine of the farmer, as the production process is his sole responsibility. There are many and varied risks in the production process which can reduce profitability, compared with those which may occur in the subsequent processes of marketing and consumption.

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Understanding risk and return

All investments have risk, but some investments are riskier than others theres a greater chance you could lose some or all of your money. In general, higher-risk investments offer higher potential returns, and lower-risk investments offer lower returns. For example, GICs and savings bonds have low risk because they guarantee that you will get your money back. But they also have a lower return than most other investments and may not keep pace with inflation. Investments like mutual funds, bonds and stocks, may have a higher return over the long term, but their prices can change sometimes by a lot. You could lose money. Other investments, like high yield bonds and leveraged ETFs, are highly speculative and are meant for investors who can afford to lose all of their money in the investment. Keep in mind that risk and return are often affected by changes in economic conditions. And what seems risky to you may not seem risky to someone else.
RISK-RETURN RELATIONSHIP IN INVESTMENTS

The risk and return constitute the framework for taking investment decision. Return from equity comprises dividend and capital appreciation. To earn return on investment, that is, to earn dividend and to get capital appreciation, investment has to be made for some period which in turn implies passage of time. Dealing with the return to be achieved requires estimated of the return on investment over the time period. Risk denotes deviation of actual return from the estimated return. This deviation of actual return from expected return may be on either side both above
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and below the expected return. However, investors are more concerned with the downside risk. The risk in holding security deviation of return deviation of dividend and capital appreciation from the expected return may arise due to internal and external forces. That part of the risk which is internal that in unique and related to the firm and industry is called unsystematic risk. That part of the risk which is external and which affects all securities and is broad in its effect is called systematic risk.The fact that investors do not hold a single security which they consider most profitable is enough to say that they are not only interested in the maximization of return, but also minimization of risks. The unsystematic risk is eliminated through holding more diversified securities. Systematic risk is also known as non-diversifiable risk as this can not be eliminated through more securities and is also called market risk. Therefore, diversification leads to risk reduction but only to the minimum level of market risk.The investors increase their required return as perceived uncertainty increases. The rate of return differs substantially among alternative investments, and because the required return on specific investments change over time, the factors that influence the required rate of return must be considered.

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Risk v/s uncertainity

Uncertainty is simply the fact that we dont know what is going to happen. Even understanding uncertainty we cannot mitigate these we just have to deal with them as they happen. While risks can seen as threatening, uncertainty can be seen as stimulating. Risk constantly faces us as human beings. There are risks to health, wealth and happiness. There are risks from other people, from natural occurrences and from systems failure. These risks can be expected and steps can be taken against their effect. You can protect yourself against them. Insurance is a simple form of protection, skill and awareness are important forms of protection RisK Life begins with risk, and probably there is no human endeavor that does not involve some amount of risk. All activities carry some risk, but some are inherently more risky than others. For example, trying to climb Mount Everest is obviously a risky adventure, but even you step out to drive your car around in the city, there is some risk of accident. There are many definitions of risk, and though each talks about different things, they all agree on one point and that is future problems or mishaps that can be avoided or reduced when undertaking an activity. Uncertainty In common parlance, risk and uncertainty seem to be one and the same thing. It is a word that connotes actions or events over which one has no control and may occur in future. Uncertainty has an X factor implicated whenever it is used in the sense that it can never be measured or quantified. When you do not know the outcome of any activity, you are uncertain about it. If for example, something is taking place for the first time, you are not aware of what its consequences can be. Difference between Risk and Uncertainty Thus it is clear then that though both risk and uncertainty talk about future losses or hazards, while risk can be quantified and measured; there is no known way of ascertaining uncertainty. Risk is thus closer to probability where you know what the chances of an outcome are. In gambling for example, if you are taking a risk on a particular number in a game of roulette, you know that the probability of that number finally appearing is 1/29 or the number being present in the game, while uncertainty is reflected when you are not sure of the outcome as in the case of putting money on a horse in a horse race. Risk and Uncertainty are concepts that talk about expectations in future, but whereas you can minimize risk by taking health policies to face an uncertain future, you cannot remove uncertainty from life altogether. When airplanes were introduced, many people were afraid of flying saying it was very risky, and indeed they were right. But with technological advances, the risk factor has been greatly minimized, though there is still uncertainty which is beyond human control.
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When you are uncertain, you are not sure of what is going to happen next. When you take precautions against a disease, you are reducing the risk of catching it. Thus it becomes clear that risk is when you know that hazard is there, but its occurrence has a very low probability, but uncertainty is when you know nothing about the outcome. Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated. The term "risk," as loosely used in everyday speech and in economic discussion, really covers two things which, functionally at least, in their causal relations to the phenomena of economic organization, are categorically different. ... The essential fact is that "risk" means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomenon depending on which of the two is really present and operating. ... It will appear that a measurable uncertainty, or "risk" proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all. We ... accordingly restrict the term "uncertainty" to cases of the non-quantitive type.

Risk v/s gambling

Many people dont understand the difference between taking risks and gambling. Here is the definition of gambling: GAMBLING 1. To take risky action with the hope of a desired result despite very little chance of success. 2. The risking of money or other items of material value on an event, with an uncertain outcome with the primary intent of winning additional money and or goods of material value. For us, we dont gamble. However, we do take a lot of risks. The difference is that when gambling, you have a high chance of losing, whereas with a calculated risk, you have a high chance of winning! A calculated risk is where you give thoughtful consideration to the risk and for that which the potential costs and potential benefits have been weighed and considered.
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Add to the mix ones level of trustwe take risks and we trust. Many people gamble and have no trust This past weekend my parents were down visiting. We always have a wonderful time, and one of my mothers favourite things to do is take a trip to the nearby casino. They go in and hit the penny slots and have a great few hours playing away. Sometimes they win, sometimes they dont. Sometimes youre ahead, sometimes not, but we all practice the rule that you only go in with what youd be comfortable losing. In other words, you are not going to the casino to make money, you are going to lose it. If by chance you come out ahead, great, but if not, you shouldnt be gambling any more than youd be willing to just throw away.

A casino is a gamble. Life, however, shouldnt be. Too often people let fear hold them back, or try to avoid change, because they feel it is a gamble. Gambling/Risk Activity Degree of harm: LowRisk Activity / Gambling Not harmful / Not problematic Highrisk/ Problem Activity / Gambling Harmful / Problematic

Doing new things, changing your life, expanding your horizons these are not gambles, they are risks. A risk is something than can be minimized. I jump in my boat and go for a ride on the river. Is there a chance I could hit another boat, or my engine could stall, or I could capsize? Sure, anything can happen. However, I spend time mitigating my risk for these situations. Ive taken a safe boating course. I know the areas that are safe to take my boat in. I obey the rules of the water. I make sure the boat is in top-notch condition. It may be risky to go for that ride, but I do my best to minimize the risk as much as I can. Lets not get confused between these two ideas. In a gamble you can lose everything, in a risk, you can minimize the chances of disaster. Its fine to avoid gambling, but no matter what, never avoid taking risks. Step out of your comfort zone, shake things up, and invite that change in. You must constantly be moving forward in order to create the life you deserve.

Gambling and Risk Factors Gambling activity tends to be categorized according to participation and the relative disruption and exposure to harm that gambling may bring to an individuals life. Often, disruption is measured by the time spent at a particular activity in association
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with the resulting consequences of that activity. For example, the likelihood of experiencing harm from gamblingrelated activity climbs the more often one gambles and the more money is invested in gambling activity. As with studies of alcohol consumption, these authors refer to risk curves the levels of consumption (in the case of alcohol) that result in various degrees of harm: low risk participation, for example, has optimal limits based specifically on relatively low levels of participation (or consumption, in the case of alcohol use). Categorizations of gambling behaviour tend to fall along a particular range, from lowrisk gambling, at one end, to atrisk gambling, to highrisk/problem gambling at the other end . For many researchers, the goal has been to identify the factors that may contribute to an individual being placed within a certain category, as well as factors that may result in advancing to more deleterious categories (see Table: harm increases at high risk).

References to risk or protective factors in relation to gambling point to the examination of particular activities (or characteristics) that may either encourage or inhibit movement between categories of relative harmfulness. For example, if an individual gambles moderately, but couples this gambling activity with significant alcohol or drug intake, the likelihood, or risk, of harm to that individual may increase. On the other hand, if an individual gambles moderately but refrains from drinking and sets a dollar limit to his or her activities, then the likelihood of negative experiences associated with gambling may be reduced. In effect, risk factors associated with lowrisk activities would be those that would increase the likelihood of harm: nonproblematic participation is examined to determine factors insulating individuals from harm. Alternatively, particular behaviours and factors are examined that might cause movement to a higher likelihood of problems associated with risk activity. For those who participate in highrisk activity, consideration is given to the types of factors and characteristics that accompany such highrisk behaviour and sustain or maintain highrisk activity, rather than diminish it.

Gambling vs Speculation
Gambling and Speculation are popular among those who want to make easy money. One cannot deny that money has been ruling the world today. People always thrive to profit, and the easier it is to earn money, the better. With that mindset comes the popularity of gambling and speculation. But what might we overlook is the fact that
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even if these two seems to have the same goal, there is difference between gambling and speculation. Gambling If you want cash within a snap, maybe gambling can help you with that. When one say gambling, it would usually connote casinos, lotteries and slot machines. And every time you gamble, there are only two things you can expect, it is either you win, or you lose. This has been popular because you only have to spend a small amount of money for stakes that are very high. For example, in lottery, the jackpot would amount to millions of dollars, but you can bet for just a couple of bucks. Speculation If one wants to increase his chances to profit one might try to speculate. Speculation is just like investment, you initially put in a capital expecting a profit in return. This is also defined as the act of placing funds on a financial vehicle with the intention of getting satisfactory returns over an amount of time. The stock market is a widely known rendezvous for speculators. Difference between Gambling and Speculation Nowadays if you do not have money you have nothing, everything comes with a price. Thus, no wonder man is looking for a lot of ways, preferably easier ones, to earn it. Love for money has been stitched to man itself; it has been a part of the human being and the society since eternity. Gambling and Speculation are similar in the sense that they can help you profit in a short amount of time. However, one would need skills to become a good speculator. There are so many factors one would need to study and master to excel in this area. While on the other hand, gamblers prosper just because of plain luck. No one has proven how to master luck yet. Knowing the difference between gambling and speculation can give you a clearer view on which path would you want to take. There are people who believe they are born lucky and may think gambling is their thing. However there are some people who have a wider view of what is ahead and try to develop the skills to try and speculate. I 1.Gambling and speculation are vehicles to profit easily. 2. The probability to succeed in either gambling or speculation is undetermined. 3. The success of a speculator would be because of his skills and knowledge while the success of a gambler would be due to his luck. 4. Gambling can be done without thinking while speculation needs in depth study. 5. Speculation needs a lot more hard work compared to gambling. A speculator is someone who tries to profit from changes in prices of economic goods. While this is generally done either by buying low and selling high, or selling high and buying back low, the important point is that he/she is using economic goods; i.e., things that are both scarce and useful. Because economic goods are both
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useful and scarce, they benefit mankind and are universally valued. People who supply economic goods when and where they are needed perform a valuable service to society (think Wal-Mart, UPS, and Exxon-Mobil, to name a few companies). In the futures industry in the United States, we started with corn and wheat, and grew to include precious metals, energy products, currencies, interest-rate sensitive instruments, and most recently, futures on the prices of single stocksall economic goods (or instruments that derive their value from economic goods). By supplying these goods and determining their prices efficiently, the futures industry performs a valuable service to society. Not only does it provide a forum for hedgers (people who want to avoid or transfer the inherent risk of price change associated with being in the cash market for economic goods), but it also allocates/distributes its wares to any interested (and financially capable) participants. Market participants who buy or sell futures contracts in an attempt to earn a profit (speculators) are benefiting society by supplying the economic goods at a market price when they are needed. Without such a service, supplies could dry up and prices would be determined less efficiently (read: more price volatility). In short, they supply the capital that is the lifeblood (liquidity) of the markets, and they assume the risk that hedgers want to transfer. Society, as a whole, benefits from the greater market liquidity that speculators provide for all economic goods. Gamblers, on the other hand, are people who seek out man-made risks; e.g., the roll of dice, spin of a roulette wheel, outcome of a race, sporting event, or card game. They actually create risk that never existed before they placed the bet. Man-made risks fall under the category of fun or entertainment. They are contrived events not based on economic goods. Without these events, mankind would be a little less entertained, but the flow of economic goods would continue unabated. Gambling does not benefit society as a wholeonly a small class of winners. It should also be noted that gamblers calculate their odds in an attempt to win bets, while the more successful speculators research supply and demand factors and market price movements for their commodities. The more speculators know about their commodity, the greater their chances of earning a profit. Knowledge about their market makes a difference. And if they know enough, along with the use of good money management techniques, they can earn profits consistently. While some gamblers can win regularly, they primarily do this through good money management techniques, and by calculating the odds of a specific event happening at a certain time. (This should not be confused with the insurance business, which deals in very large numbers.) Gamblers odds must be calculated anew with each event, while speculators rely on an on-going course of events to determine the psychology of the market, and modify their actions accordingly. The bottom line is that speculators benefit mankind, and gamblers are just seeking a thrill.

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Risk v/s Probability

Risk management is an important function in organizations today. Companies undertake increasingly complex and ambitious projects, and those projects must be executed successfully, in an uncertain and often risky environment. As a responsible manager, you need to be aware of these risks. Does this mean that you should try to address each and every risk that your project might face? Probably not in all but the most critical environments, this can be much too expensive, both in time and resources. Instead, you need to prioritize risks. If you do this effectively, you can focus the majority of your time and effort on the most important risks. The Risk Impact/Probability Chart provides a useful framework that helps you decide which risks need your attention. The Risk Impact/Probability Chart is based on the principle that a risk has two primary dimensions: 1. Probability A risk is an event that "may" occur. The probability of it occurring can range anywhere from just above 0 percent to just below 100 percent. (Note: It can't be exactly 100 percent, because then it would be a certainty, not a risk. And it can't be exactly 0 percent, or it wouldn't be a risk.) 2. Impact A risk, by its very nature, always has a negative impact. However, the size of the impact varies in terms of cost and impact on health, human life, or some other critical factor. The chart allows you to rate potential risks on these two dimensions. The probability that a risk will occur is represented on one axis of the chart and the impact of the risk, if it occurs, on the other. You use these two measures to plot the risk on the chart. This gives you a quick, clear view of the priority that you need to give to each. You can then decide what resources you will allocate to managing that particular risk. The basic form of the Risk Impact/Probability Chart is shown below. The Risk Impact/Probability Chart

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The corners of the chart have these characteristics: Low impact/low probability Risks in the bottom left corner are low level, and you can often ignore them. Low impact/high probability Risks in the top left corner are of moderate importance if these things happen, you can cope with them and move on. However, you should try to reduce the likelihood that they'll occur. High impact/low probability Risks in the bottom right corner are of high importance if they do occur, but they're very unlikely to happen. For these, however, you should do what you can to reduce the impact they'll have if they do occur, and you should have contingency plans in place just in case they do. High impact/high probability Risks towards the top right corner are of critical importance. These are your top priorities, and are risks that you must pay close attention to. To use the Risk Impact/Probability Chart, then follow these steps: 1. List all of the likely risks that your project faces. Make the list as comprehensive as possible. 2. Assess the probability of each risk occurring, and assign it a rating. For example, you could use a scale of 1 to 10. Assign a score of 1 when a risk is extremely unlikely to occur, and use a score of 10 when the risk is extremely likely to occur. 3. Estimate the impact on the project if the risk occurs. Again, do this for each and every risk on your list. Using your 1-10 scale, assign it a 1 for little impact and a 10 for a huge, catastrophic impact. 4. Map out the ratings on the Risk Impact/Probability Chart.
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5. Develop a response to each risk, according to its position in the chart. Remember, risks in the bottom left corner can often be ignored, while those in the top right corner need a great deal of time and attention

Kingfisher Airlines continues to default on service tax dues

MUMBAI, SEPT 27: Kingfisher Airlines continues to default on its service tax dues, amounting to over Rs 60 crore, and the Government move to allow FDI policy in the civil aviation sector offers the only ray of hope to recover the dues from the debt-ridden airline, according to a top tax official.Kingfisher has said it is in talks with foreign carriers for bringing in FDI, a move that is expected help it overcome financial troubles.Kingfisher Airlines continues to be a defaulter and has an outstanding of over Rs 60 crore. It is defaulting on the weekly payments and most of its bank
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accounts are frozen, Mumbai Service Tax Commissioner Sushil Solanki told PTI.As the department has frozen almost all the accounts of the ailing airline, which is forced to operate only a skeletal schedule due to drop in services, it is very difficult for the carrier to pay its dues as cash flows are down to a trickle.Kingfisher has not been depositing service tax collected from passengers with the department since November last on a regular basis and instead has been diverting it for other purposes on a regular basis.As the airline started defaulting on tax payment, the department started freezing its bank accounts since November last. The Vijay Mallya-promoted airlines total dues stood at Rs 60 crore, from a high of Rs 140 crore, after its bank accounts were frozen.A full payment of dues is very difficult and the only way by which the money can come in is via a foreign partners fund infusion, if it goes through, Solanki said.Mallya said in Bangalore yesterday that Kingfisher was talking with foreign airlines.Yes, we are in talks he told reporters on the sidelines of the annual general meeting of the UB Group promoted by him.

Conclusion
Risk management is a process of thinking systematically about all possible risks,problems or disasters before they happen and setting up procedures that will avoidthe risk, or minimise its impact, or cope with its impact. It is basically setting up aprocess where you can identify the risk and set up a strategy to control or deal with it.It is also about making a realistic evaluation of the true level of risk. The chance of atidal wave taking out your annual beach picnic is fairly slim. The chance of your group's bus being involved in a road accident is a bit more pressing. Risk management ensures that an organization identifies and understands the risks to which it is exposed. Risk management also guarantees that the organization creates and implements an effective plan to prevent losses or reduce the impact if a loss occurs.

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Bibliography
WWW.GOOGLE.COM WWW.WIKIPEDIA.COM WWW.YAHOOSEARCH.COM WWW.INVESTPEDIA.COM WWW.INVESTORWORDS.COM RISK MANAGEMENT BOOK

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