The risk which arises from insufficient capital available to balance the sudden decrease in assets value is classified as ___________?
Correct answer: A. insolvency risk
- A. insolvency risk
- B. solvency risk
- C. balanced risk
- D. unbalanced risk
Explanation
Insolvency risk occurs when an institution lacks sufficient capital to absorb a sudden fall in the value of its assets. Solvency risk is sometimes used broadly for financial distress, but insolvency is the precise term for this capital shortfall.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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