Types of Risks
Categorizing risks is a challenging task; however, it is also the most crucial part since different businesses as well as investors are exposed to varied sets of risks (Chitakornkijsil, 2009). In such cases, the effective strategy is one that focuses on the risks which the party seeks to manage. A generalized risk management strategy is of less suitability than a customized strategy which has been designed to manage the risks of the specific party. For example, an importer would be more concerned about the foreign exchange rate risk in contrast to a domestic manufacturer, who locally sells his output and is more concerned about other types of risks but not exchange risk. This example highlights that risk exposure differs across businesses and individuals.