Chapter 15- risk

Question 1

Risk

Answer 1

The possibility that event will not turn out as expected. The probability of some risks can be calculated by referring to past experience, but mistakes may be made and uncertainty may make calculations impossible

Question 2

Financial intermediaries

Answer 2

Offer a link between investors and savers

Question 3

Unlimited liability

Answer 3

Means that an individual has no legal separation from their business and is therefore responsible for the debts of the business. Their personal assets could be used to pay debts if the business isn’t able to cover them

Question 4

Limited liability

Answer 4

Protects shareholders in that as individuals they are legally separate from the business. The most that shareholders have to contribute towards business debts is the amount of capital originally invested in buying shares

Question 5

Private limited companies

Answer 5

The owners of these have limited liability for business debts but cannot raise finance from the general public. Often are family businesses and shareholders are members of the family or personal friends. Small to medium sized businesses

Question 6

Public limited companies

Answer 6

Are owned by their shareholders who have limited liability. The companies can raise finance by selling shares to the general public and large organisations such a pension funds. In this way, they can raise substantial finance in order to expand