Sometimes decisions are made in the face of total ambiguity: On how likely any state of nature is, there is no information.

When a decision is made, the person making it has no control over and is unsure of which future natural conditions will take place.

Let's say a distribution business is thinking about getting a computer to help them handle more orders. The company will see a significant gain in profit if the economy stays strong; however, if the economy suffers, the company will experience a loss.

The two choices available are to buy the computer and not to buy the computer.

Solved Example: 9001-01

As against using established rules in reasoning, the decision making process involves: (UPPSC Civil Service 2017 Paper II)

A. Cluster of other rules

B. Uncertainty

C. Reliable information

D. None of the above

Correct Answer: B

Solved Example: 9001-02

When a manager knows little about the intended goals of a decision and the outcomes of the options are unclear, what type of situation are they in? (MPPEB Group II Jan 2021 Shift II)

A. Ambiguity

B. Certainty

C. Uncertainty

D. Risk

Correct Answer: A

A decision tree is a diagram that displays each potential course of action. It is possible to observe and understand all of this information at a single glance. A horizontal tree is similar to a decision tree. A decision point is the tree's root node. Various alternatives and sub-alternatives are denoted as branches and sub-branches, respectively, from the base. The manager must thoroughly weigh all options before choosing the best one.

• Decision trees can be used to find expected values.
• Start with a decision node (represented by a square or rectangle)
• Draw decision alternatives, ending in chance node.(represented by a circle)
• Mention Probability and associated outcome value.

1. Market risk: Risk of changing conditions, such as shopping online instead of going to mall or learning remotely rather than going to school/colleges.
2. Credit risk: Possibility that a person may default on ihs obligations.
3. Liquidity risk: Not enough funds to carry on daily opeations, inability to pay suppliers on a short term or pay salaries.
4. Operational risk: Flawed business model, inaccurate projections, lawsuits, etc.

Solved Example: 9000-01

Market risks are most prominent for companies engaged in: (IBPS SO Dec 2019- Rajbhasha and Law Officer)

A. Retail

B. Investment

C. Commercial banks

D. Central banks

Correct Answer: B

Solved Example: 9000-02

The portfolio theory articulates diversification to reduce which of the following risks? (UGC Paper II: Commerce Oct 2020 Shift I)

A. Market risk

B. Financial risk

C. Unsystematic risk

D. Business risk

Correct Answer: C

Solved Example: 9000-03

Which one of the following statements is true about the risk considered for capital requirements under Basel II? (UGC NET Paper-II: Commerce Dec 2021 Shift II)

A. Credit risk, interest rate risk and foreign exchange risk

B. Credit risk, market risk and operational risk

C. Credit risk, political risk and country risk

D. Credit risk, interest rate risk and political risk

Correct Answer: B

Solved Example: 9000-04

Which of the following forms may not result in credit risk?

(A) Principle and/or interest amount may not be repaid in the case of direct lending.

(B) In case of guarantees or letter of credit, fund may not be forth coming from the constituents upon crystallisation of the liability.

(C) Funds/Securities settlement may not be effected, in case of securities trading business.

(D) Provide information for determining adequacy of loan loss provision.

Choose the correct answer from the options given below:

A. A, B and C only

B. A, C and D only

C. B and C only

D. D only

Correct Answer: D

Solved Example: 9000-05

___________risk refers to risk which is caused due to factors unique or related to a firm or industry: (AWES PGT 2012 - Commerce)

A. Systematic

B. Unsystematic

C. Market

D. Interstate

Correct Answer: B