Risks and Uncertainty

Risk: quantifiable - the probability of something occurring, expect changes. 

Uncertainty: cannot be calculated, unpredictable BUT have awareness of it = difficult for businesses and government to plan 

RISK ≠ UNCERTAINTY 

Shocks: unexpected events, unpredictable, have major impact on the economy. 

Shocks create changes which require time to adjust to - Time lag 

Exchange rates: volatile = small shocks. Changes in the exchange rate can affect profit, income and employment opportunities.  

Forward market reduces uncertainties in buying currency - insured against unexpected changes = allow businesses to be flexible + plan ahead 

Insurance protects against unforeseen events, a COP, pay and compensation. 

Insurance companies buy bonds + shares = source of investment finance (public + private)