4. Measuring and Modifying Risks

g. describe methods for measuring and modifying risk exposures and factors to consider in choosing among the methods.

What are the three fundamental macroeconomic factors that create risk? 1. All risks come from uncertainties. 2. Financial risks come from fundamental factors in macro-economies and industries. 3. There are systematic risks and unsystematic (diversifiable) risks.

What are the four broad categories of risk modification? 1. Risk prevention and avoidance 2. Risk acceptance 3. Risk transfer (insurance) 4. Risk shifting (derivatives)