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. Decision making: Situation where the current state ofknowledge is such that (1) the orderor

nature of things is unknown, (2) the consequences, extent, ormagnitude of circumstances,

conditions, orevents is unpredictable, and (3) credibleprobabilities to possible outcomes cannot

be assigned. Although too much uncertainty is undesirable, manageable uncertaintyprovides the

freedom to makecreativedecisions. See also risk.

2. Information theory: Degree to which availablechoices or the outcomes of possible alternatives

are free from constraints. See also entropy and information.

3. Statistics: Situation where neither theprobability distribution of a variable nor its mode of

occurrence is known.

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Risk:

. General: Probability orthreat of a damage, injury, liability, loss, or othernegative occurrence,

caused by external orinternalvulnerabilities, and which may be neutralized through pre-mediated

action.

2. Finance: Probability that an actualreturnon an investment will be lowerthan the expected

return. Financial riskis divided into the following general categories: (1) Basis risk: Changes in

interest rates will cause interest-bearing liabilities (deposits) to reprice at a rate higher than that of

the interest-bearing assets (loans). (2) Capital risk: Losses from un-recovered loans will affect the

financial institution'scapital base and may necessitate floating of a new stock(share) issue. (3)

Country risk: Economic and political changes in a foreigncountry will affect loan-repayments

from debtors. (4) Default risk: Borrowers will not be able to repayprincipaland interest as

arranged (also called credit risk). (5) Delivery risk: Buyerorsellerof a financial instrument or

foreign currency will not be able to meetassociateddeliveryobligations on theirmaturity. (6)

Economic risk: Changes in the state ofeconomy will impair the debtors' ability to pay or the

potentialborrower'sability toborrow. (7) Exchange rate risk: Appreciation ordepreciation of a

currency will result in a loss or an naked-position. (8) Interest rate risk: Decline in net interest

income will result from changes in relationship between interest income and interest expense. (9)

Liquidity risk: There will not be enough cash and/orcash-equivalents to meet the needs of

depositors and borrowers. (10) Operations risk: Failure ofdata processingequipment will prevent

the bank from maintaining its critical operations to the customers' satisfaction. (11) Payment

system risk: Payment system of a majorbank will malfunction and will hinder itspayments. (12)

Political risk: Political changes in a debtor's country will jeopardize debt-service payments. (13)

Refinancing risk: It will not be possible to refinance maturing liabilities (deposits) when they fall

due, at economic cost and terms. (14) Reinvestment risk: It will not be possible to reinvest

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interest-earning assets (loans) at currentmarket rates. (15) Settlement risk: Failure of a major bank

will result in a chain-reaction reducing otherbanks' ability to honorpayment commitments. (16)

Sovereign risk: Local or foreign debtor-government will refuse to honor its debt obligations on

theirdue date. (17) Underwriting risk:New issue ofsecurities underwritten by the institution will

not be sold or its market price will drop.

3. Foodindustry: Function of the probability of an adverse effect and the magnitude of that effect,

consequential to a hazard in food (FAO/WHO definition).

4. Insurance: Situation where theprobability distribution of a variable (such as burning down of a

building) is known but its mode of occurrence oractual value (whether the fire will occur at a

particularproperty) is not. A risk is not an uncertainty (where neither the probability nor the mode

of the occurrence is known), aperil (cause of loss), or a hazard (agent orcondition that makes the

occurrence of a peril more likely or more severe).

5. Securities trading: Quantifiable likelihood (probability) of a loss orstagnation in value. Trading

risk is divided into two general categories (1) Systemic risk: Affects all securities in the sameclass

and is linked to the overallcapital-marketsystem and which, therefore, cannot be eliminated by

diversification. Measured bybetacoefficient, it is also called market riskor (erroneously)

systematic risk. (2)Non-systemic risk: Any risk that is not market-related or is not systemic. Also

called non-market risk, extra-market risk, (mistakenly) non-systematic risk, or un-systemic risk.

6. Workplace: Product of the impact of the severity (consequence) and impact of the likelihood

(probability) of a hazardous event or phenomenon. Forcarcinogen effect, risk is estimated as theincremental probability of an individual developing cancerover a lifetime (70 years) as a result of

exposure to a potential carcinogen. For non-carcinogen effect, it is evaluated by comparing an

exposure level over aperiod to a reference dose derived from experiments on animals.

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