Risk is a part of our daily lives. Risk is defined as a hazard , a peril, exposure to loss or injury. This definition suggests, that risk refers to the chance that some unfavorable event will occur. Some examples of risk are skydiving, betting at dogtrack races, betting on ball games, stock investing, and even taking classes at school. If one were to skydive, they are risking their life. Any betting rather it is legal or illegal is risking one's finances. Smoking is a risk of developing cancer. Some people risk going to hell by committing sins that they can avoid committing.

Most people in society view risk as a chance of loss. But the reality of risk occurs any time we cannot be certain about the outcome of a particular activity or event, so we are not sure what will happen in the future. Consequently, risk results from the fact that an action such as investing can produce more than one outcome in the future. Of course when multiple outcomes are possible, some of the outcomes are considered good and some of the possible outcomes are considered bad. We all should take risk with a cognitive probability of the outcome in mind.

All agreements are contracts. Contracts can be a written agreements or verbal agreements. All loans from banks, credit unions, and other lending institutions are written contractual agreements. These contracts should state the terms and conditions of the loan. The terms include, the amount of the loan, the time length of the loan, the monthly payments, the total payback, and the annual percentage rate. Those stated terms are located in the Fed. box on legal and binding contracts.

Conditions of loans can be term inclusive of the contract, but also states the actions that can be taken in the event of the borrower bending the loan agreement with (late payments) or breaking the loan agreement with (default). Lending agreements usually have a grace period written in it, stating that the borrower have ten (10) days from the due date to make the due payment or the the customer will be charged an extra 10 % of the payment amount plus the due payment. There are many tools available for lenders to enforce written agreements, because they are legal and binding.

Financial institutions such as banks, credit unions, savings and loan companies and so forth make loans for a profit. The profit or rate of return for their investments depends on a lot of proven factors. The lender must determine the rate of risk involved in the lending each consumer money. Every borrower have a risk rate regardless of rather, the borrower is the government, business, or individual. Also, the lender must be cognitive of why the borrower is making the loan, this is regardless of the risks involved in making the loan. No lender want blindly to make a lending decision to an individual, group, or business that are using the funds in an unethical manner or for unlawful purposes.

The term risk in the financial market place simply means, the chance that a financial asset (loan) will not earn the return promised. Rate of risk explained to the ordinary consumer, can be done with this example. Three friends Joe, John and Jill. Joe borrowed fifty dollars from John March 1st, with the promise to repay him sixty dollars April 1st. Joe did not repay the loan at all. Joe later requested a twenty dollar loan from Jill. Jill asked John how did Joe repay the loan. John stated Joe defaulted on the loan. Therefore, Jill told Joe the only way she would make him the loan is at twice the interest rate that he was charged by John because he is a high risk borrower.

finance

Finance is concerned with decisions we make about money. We make these decisions in the financial markets and institutions, through investments with managerial finance and through financial services. There are many investment rules, saving models and spending decisions that we all must make on a daily basis. These decisions can be made by individuals, groups or computer models.

Our financial markets and institutions include banks, credit unions, insurance companies, and saving and loan companies. These institutions offer various types of financial instruments, such as student loans, personal loans, automobile loans, mortgages and business loans to name a few. These institutions also have F.D.I.C. protection for our savings accounts. These accounts may be money market accounts, certificates of deposits, checking accounts, individual saving as well as a host of other monetary accounts.

Investments major functions are, determining the values, risks, and returns of financial assets such as stocks and bonds. Prosessing the optimal mix of securities in the portfolio of investments is the key. The golden rule of any smart investment is, the higher the risk, the greater the reward must be.

Financial services are functions provided by various organizations that operate in the finance industry that manange money and the navigational flow of monetary destinations. Such powerful companies include, banks, insurance companies, brokerage firms and other simular institutions. The people that work in these firms are considered professionals in the areas of monetary investments, retirements, mortages, automobile loans and so forth.

Business financial managers must understand the basis of finance to succeed and this is regardless of rather the business is profit or nonprofit organization. A seasoned finance manager understands interest rate verse annual percentage rate, the value of one dollar today compared to the value of two dollars in the future, and as a wise smart man told me, " we have a choice, we can be borrowers or we can be lenders".