Risk and Liability
Risk and Liability
Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes
The meaning of Risk
- Risk is the probability of damage or a loss occurring
- Banks lend capital to consumers / firms / other financial institutions, and therefore carry a risk – the risk of the capital not being paid back will cause the bank to suffer a loss
- The return on an investment being less than the expected return is another risk banks endure
- Trade can influence interest rates and exchange rates, imposing a market risk
Implications of limited and unlimited liability
Unlimited Liability
A business structure in which the owners are personally liable for any debts and liabilities the firm incurs.
If the business is unable to meet financial obligations, the owners’ personal assets can be taken
Limited Liability
The owner incur losses equal to the amount they invested – they cannot be held liable for any amount exceeding the amount they have invested into the business
Quick Fire Quiz – Knowledge Check
1. Explain what is meant by ‘risk’ (2 marks)
2. Identify and explain two examples of risk occurring in a bank (4 marks)
3. Explain the difference between an Unlimited Liability and Limited Liability business structure (4 marks)
Next Revision Topics
- Financial Markets
- The role of Financial Markets
- Market Failure in the Financial Sector
- The role of Central Banks
- Quantity Theory of Money
- The Functions of Money
- Commercial and Investment Banks
- Types / sources of credit and the impact of credit within the economy
- Risk and Uncertainty
A Level Economics Past Papers
