1. Dr. Lokanandha Reddy Irala(www.irala.org) 1 What is Risk? Dr. Lokanandha Reddy Irala www.irala.org

2. Dr. Lokanandha Reddy Irala(www.irala.org) 2  Uncertainty?  Loss?  Exposure to the chance of loss? ……… Not a chance of profit?  Variation in the out comes? ………. Both Negative and Positive? What is risk?

3. Dr. Lokanandha Reddy Irala(www.irala.org) 3  As an average deviation form mean  …. Standard Deviation Measuring Risk

4. Dr. Lokanandha Reddy Irala(www.irala.org) 4 o Business Risk ……Being in Business o Product Risk ……Products fail in good markets even o Market Risk ……Even good products may not sell in bad markets o Country Risk ……All countries are not equally good to do business in o Economic Risk ……We may have good countries- but bad economies o Political Risk ……..Politicians may not be bad -but politics might be o Currency Risk ……..Currencies may not change -but their exchange rates do Forms of risk

5. Dr. Lokanandha Reddy Irala(www.irala.org) 5 Inflation Risk … Rising prices might out pace your investment gains Credit Risk …Some of the borrowers might turn defaulters Interest Rate Risk … Interest rates are not constant forever Reinvestment Risk... Reinvestment opportunities are not ready made Forms of Risk…

6. Dr. Lokanandha Reddy Irala(www.irala.org) 6 Operating Vs. Financial Risk Total Vs. Component Risk Unique Vs. Systemic Risk Types of Risk

7. Dr. Lokanandha Reddy Irala(www.irala.org) 7 ……You get returns !!!!!!!!!!!! No Risk ……………Risk free return Risk ……………Risk free return + Risk premium High Risk … High Risk Premium … High Returns Low Risk … Low Risk Premium … Low Returns Why Taking Risk?

8. Dr. Lokanandha Reddy Irala(www.irala.org) 8 Can I take the highest risk? …….fundamental idea remains that there's no reason to expect reward just for bearing risk. Otherwise, you'd make a lot of money in Las Vegas ……….Sharpe(1998)

9. Dr. Lokanandha Reddy Irala(www.irala.org) 9 How do I know my Risk level ? ……. Indifference curves What is the optimal risk level?