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UNDERSTANDING BUSINESS RISKS IN FINANCING PERSPECTIVES

07 November 2019 Azahari

The rule  of thumb  for any business decision  is,  the higher the risk, the higher the return is and vice versa. Business risk is  defined  as risk  arises  out of uncertainty of future events.  If these events are undesirable  or unfavorable  for  business,  damages and losses  may happen.  Risk arises  because it  is  impossible to forecast risk  in  advance  whether  and to what extent  a loss  will occur.  The importance  elements in  risk-taking  are the hope of success and the fear of failure.  That  is why  it is said that risk  is a no-win game. For financial institutions,  whether   it  is  conventional  bank  or Islamic bank, making a right decision to finance is often a difficult task to do and crucial as well. A through and strict risk appraisal of the business must be performed  and if they are uncomfortable  in taking  a certain business risk,  normally they will then insist  on certain terms and conditions with protection   in the  form of security  and guarantees to overcome  the risk  identified.

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