What type of risk involves the potential for both loss and gain, unlike pure risk?

• A. Speculative Risk
• B. Pure Risk
• C. Retention Risk
• D. Systematic Risk

Answer: (A)

Speculative risk is the correct choice because it refers to situations where there is a possibility of both gain and loss, making it distinct from pure risk. In a speculative risk scenario, individuals or entities engage in activities where the outcomes can result in a financial gain or a loss. Common examples of speculative risks include investments in stocks, gambling, and real estate speculation.

On the other hand, pure risk involves situations that can only result in a loss or no loss, such as the risk of fire, theft, or natural disasters. Retention risk pertains to the decision to retain exposure to risk instead of transferring it, such as opting not to purchase insurance. Systematic risk relates to market-wide risks that cannot be eliminated through diversification, impacting overall financial systems rather than individual risks tied to personal circumstances. Understanding these distinctions is important for evaluating different types of risk in financial planning and insurance.