In this case, assume it will be $50,000 for the first year, and will increase at 5% per year in real terms. a. Lesson Summary. The most common examples are key property damage risks, such as floods, fires, earthquakes, and hurricanes. d. Speculative risks. Speculative risks. It is a risk knowingly entered into in the hope of financial gain. True False QUESTION 7 In Theory, Reducing The Volatility Of Its Cash Flows Will Always Increase A Company's Value. One can understand that speculative income is a complex deal and at times can be quite risky. Risk exposure is usually calculated by multiplying the probability of an incident occurring by its potential losses. The taxpayer has to take care of several transactions and their actual credibility as speculative or normal business. A) A firm cannot profit from its exposure to speculative risk. Which of the following is true about speculative risks? When investing in speculative stocks, the investor must realize that while there is a chance of great returns, there is also the possibility for great loss. Take as an example the marketing of a new line of clothing. ... the annual expenses, include expenses for children, housing, etc. Exposure is the potential for loss. Which of the following statements is not false regarding exposure? Examples of speculative risks are investing in the stock market, placing bets on race horses and gambling. It is important to determine whether speculative transaction can really work up to good profits within the affirmed legalities. Pure. Pure Risk vs. Pure Risk There are two types of risks: speculative risk vs. pure risk. Pure risks are risks that have no possibility of a positive outcome—something bad will happen or nothing at all will occur. The risk that the new line will sell or not is clearly a speculative one. b. feature a chance to either gain or lose (including investment risk, reputational risk, strategic risk, etc.). Gambling is an extreme example, assuming the game is played fairly. a. The right-hand side focuses on speculative risk. The pure risk consequences of speculative risks are certainly insurable, but not the speculative risk itself. Speculative risks Risk that features a chance to either gain or lose. B) The risk/return tradeoff is not applicable to speculative risks. Speculative Risk vs. Other examples of speculative risk include gambling and real estate. D) Speculative risk is not a source of great concern for risk managers. Speculative c. Nonfinancial d. All of the above. Insurance companies typically cover pure risks. Exposure is the cause of loss and event insured against in a policy. 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