Important Points for IC 89 - Management Accounting Exam
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Social risk arises,when an otherwise profitable investment is impaired as a result of adverse legislation, harsh regulatory climate or nationalised by a socialistic Government etc.
Purchasing power risk arising due to inflation or rise in prices leading to rise in costs of production, lower margins, wage rises and profit squeezing etc.
Unsystematic risk refers to risk unique to a particular company or industry. These risks are avoidable through diversification. Unsystematic risks mainly comprises of the following risks: Business risk, Financial risk and Default risk.
Financial risk mainly includes high leverage leading to larger debt servicing problem or short term liquidity problems due to bad debts, delayed receivables and fall in current assets or rise in current liabilities.
Default risk refers to the risk accruing from the fact that a borrower may not pay interest and/or principal on time.
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