Economic risk

economic-dictionary

Economic risk is a probability that measures the possible changes, as well as the uncertainty generated, that can have an impact on the results of a company or the performance of an investment. Due to these risks, the result may vary over time.

Economic risk is a probability, or several, that reflects the possible variations that may occur in the different scenarios with which a company interacts. In this way, economic risk measures the uncertainty generated by the different possible events that may occur over time, which may have a direct impact on the company. The importance of measuring this risk is the fact that the income statement depends on these risks.

Depending on the situation and the company's interaction with different scenarios, economic risks can come from different fronts.For this, many companies are in charge of preparing the risk map, which considers the different economic risks.

Types of economic risks

Depending on the situation and the company's interaction with economic agents and scenarios, there are different types of economic risks.

Depending on the origin, we can identify the following relationship of the different types of economic risks:

  • Country risk: The risk that a company runs due to the different events that may occur in a foreign country or the country of origin.
  • Currency risk: It is the risk that is produced by possible losses caused by the variation of currencies.
  • Market risk: It is the risk that a company runs due to the possible variations that influence the investments that the company has.
  • Rating risk: It is the risk derived from the credit rating received by the different rating agencies, in relation to credit risk.
  • Liquidity risk: It is the risk produced by possible lack of capital to acquire assets.
  • Systemic risk: It is the risk of contagion that exists when a bankruptcy situation occurs in a company or sector that affects the rest of an economy.
  • Interest risk: It is the risk that exists due to the possible abrupt variation of interest rates in an economy.
  • Legal risk: It is the risk that exists due to the implementation of regulations and laws that disadvantage the activity of the company.
  • Credit risk: It is the risk that is produced by the breach of obligations with creditors.
  • Sovereign risk: It is the risk that a company assumes due to possible ineffectiveness in the processes of legal claims for defaults.
  • Operational risk: It is the risk that arises from the company not being able to operate properly, not having enough provisions, its production chain not working well, etc.
  • Model risk: It is the risk that is produced by the possible application of failed models.
  • Transfer risk: It is the risk that occurs when possible variations in the currency, as well as the situation in foreign countries, can cause defaults due to the inability to possess foreign currency.

Depending on the origin, these are the different economic risks that a company can face. These risks must be taken into account at all times, as they condition the company's results.

Tags:  accounting finance passes 

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