36 Pages

■ CHAPTER 2 Types of Risk

Business enterprises operate as independent legal entities that aim at creating values and increasing owners’ wealth. A business entity uses the funds the owners provide to purchase inputs, and process or combine them in certain ways to produce output (a product different from the individual components of inputs) that it can sell to others. These stages-financing, acquisition of inputs, processing and disposing of output-require the entity’s interaction with people and organizations outside its boundaries. In general, we can define these boundaries as the conceptual space determined by the extent to which an organization has control over resources, obligations to satisfy, and rights to exercise.