Lesson: Types of Risk

Instructor: Nick Palazzolo

In this lesson, Nick Palazzolo, CPA, delves into the various types of risks that can affect organizations, breaking them down into systematic and unsystematic categories. With clear examples and straightforward explanations, he identifies key risks such as interest rate risk, market risk, and purchasing power risk, illustrating their impact on businesses. Moreover, Nick prioritizes certain risks over others, giving a practical insight into their relevance to real-world scenarios and examinations. He engages in a detailed discussion on financial, default, and credit risks, making sure to clarify the practical differences from both a borrower's and a lender's perspective. Nick caps off the lesson with an overview of other risks, such as sovereign and operational risk, ensuring a comprehensive understanding of the risks involved in business and investment.

Updated: May 31, 2022 Create an account

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Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Now we break it down even further and give you these real types of risk, right? The actual names for them. Now, do you need to know all of these? No you don't? Not at all. No worries. There are some that you'll need to know and that's fine. Generally, I would know these top three for sure. So systematic risk uncontrollable by an organization, macroeconomic in nature or macro affects everything. These three I would know for sure that these are all systematic risk.

Yeah, these are the ones are great examples. I would say these are probably more I would know these ones. These ones, they're true, right. But I don't have them noted or in my experience, I have not seen them really asked on the exam. But we're going to see a lot more unsystematic risk in terms of what will be asked on exam.

Take it all in, right? Interest rate risk. The risk that interest rates will go up or down. Obviously there's risk in that if all of a sudden it becomes more expensive to borrow money, well, that's a concern. If market risk, this is just the risk of being in the market, that the whole market will fluctuate.

And purchasing power or inflationary risk is that all of a sudden inflation happens, your money is not worth as much and your purchasing power goes down. It goes to a lot less than what it was. All right, a good little take on this. Again, just to recap, these three are important and just generally knowing, right? It makes sense. These are all items that would affect every single business.

Here we are at our unsystematic risk. Now let's think about this. These are controllable by an organization. They're micro, meaning they affect just an industry

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