i. Definition of Risk:
Risk refers to the uncertainty that surrounds future events and outcomes. It represents the possibility that the actual results of business activities will differ from the expected results. Risk can lead to either a positive or a negative deviation from expected outcomes.

ii. Categories of Risk:

1. Pure Risk:
Pure risks are risks that involve only the possibility of loss or no loss. There is no opportunity for gain. Companies face pure risks in areas such as fire damage, employee injuries, and natural disasters. For example, the risk of a fire breaking out in a factory is a pure risk because there is no chance for profit — only a potential loss.

2. Speculative Risk:
Speculative risks involve the possibility of both gain and loss. When a company engages in activities like investing in the stock market or launching a new product, it takes on speculative risk. For instance, an investor purchasing shares may see a price increase and gain a profit, or the price may fall, leading to a loss. Speculative risk is a two-way risk with the potential for both positive and negative outcomes.