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Types of risk in terms of the source of danger
The contemporary companies face a variety of financial risks in the various functional areas, and throughout the company, and these risks include:
Business risk: a related industry and area in which the company operates the risks.
Operational risk: the company's internal systems associated risks.
Risk management: It is associated with the functions of risk management practices.
Legal risk: They arising from entering into contractual agreements with other parties with the risks of uncertainty to fulfill the obligations towards these parties.
Credit risk: It is associated with the failure of the other party to fulfill its obligations risks.
Price risk: It is associated with the risk of unwanted movements) up or down) at market prices, which are divided into; interest rate risk, currency risk rate or exchange rate, commodity price risk, property risk.
Risk of money: It risks resulting from the company's failure to meet the burden of debt in accordance with agreed terms with lenders or financiers.
The risk of focus: It risks resulting from the concentration of investments in one sector or several small segments, called the "risk of non-diversification."
Risk coverage: It risks resulting from the error in coverage or failure to achieve adequate coverage of the risks faced by the company.
Political risk: the risk arising from government decisions, such as taxes, pricing, customs, nationalization.
I agree with answers given by experts Mr. Georgei Assi and Mr. Vinod Jetley.
Agreed with the expert answers of Mr. Vinod Jetley and Mr. Georgei Assi
Choosing the Right Source of Finance
A business needs to assess the different types of finance based on the following criteria:
Amount of money required – a large amount of money is not available through some sources and the other sources of finance may not offer enough flexibility for a smaller amount.
How quickly the money is needed – the longer a business can spend trying to raise the money, normally the cheaper it is. However it may need the money very quickly (say if had to pay a big wage bill which if not paid would mean the factory would close down). The business would then have to accept a higher cost.
The cheapest option available – the cost of finance is normally measured in terms of the extra money that needs to be paid to secure the initial amount – the typical cost is the interest that has to be paid on the borrowed amount. The cheapest form of money to a business comes from its trading profits.
The amount of risk involved in the reason for the cash – a project which has less chance of leading to a profit is deemed more risky than one that does. Potential sources of finance (especially external sources) take this into account and may not lend money to higher risk business projects, unless there is some sort of guarantee that their money will be returned.
The length of time of the requirement for finance - a good entrepreneur will judge whether the finance needed is for a long-term project or short term and therefore decide what type of finance they wish to use.
Short Term and Long Term Finance
Short-term finance is needed to cover the day to day running of the business. It will be paid back in a short period of time, so less risky for lenders.
Long-term finance tends to be spent on large projects that will pay back over a longer period of time. More risky so lenders tend to ask for some form of insurance or security if the company is unable to repay the loan. A mortgage is an example of secured long-term finance.
The main types of short-term finance are:
The main types of long-term finance that are available for to a business are:
Internal and External Finance
Internal finance comes from the trading of the business.
External finance comes from individuals or organisations that do not trade directly with the business e.g. banks.
Internal finance tends to be the cheapest form of finance since a business does not need to pay interest on the money. However it may not be able to generate the sums of money the business is looking for, especially for larger uses of finance.
Examples of internal finance are:
Examples of external finance are:
Agreed with the comments of Mr. Vinod.
Agree with all experts. Well explained.
As a complement of the other answers let me present these
The origin of the money into a contract must be specified with account number and a bank to make any transactions.The way to input the money into the owner account can be object of discusion, normally all the persons deposit our payment job into account bankThe case of companies the money is guaranteed by the contract of services or business with goodsThere exists persons who make illegal transactions like drugs and plan the way to clean their moneythe funds are controled for international business law and controlled in each country with local laws too.When some person are not sure with the origin of the funds it is neccessary to initiate an investigation for this case existe experts in criminal engineering that determine and assit the violations to the lawthese implies that the facts reveal the motives of international mafia or racketeringFor that reason all international business are supervised and controled with ABA routing number or Swift code as neccessary.There exist risk to lose money when someone pays with papers that are part of legal proceeding trialThere exist lose of money when the contract are not clear in the objectives of the project and the final achievementsThere exist lose of money when the forecast, estimations and evaluations of the project was falseThere exist lose of money when the cronogram of execution are not accomplished or was created without the considerations of legal laws and codes involved in the country of implementationThere exist lose of money when the goods are buyed without the proper drawings and specification revision and approval
