Which type of risk involves the possibility of financial downturns within a specific industry?

Business risk refers to the potential for financial loss due to factors that directly affect the operations of a specific company or industry. This includes fluctuations in demand for products or services, changes in regulatory environments, or adverse developments specific to that industry. Unlike market risk, which affects a broader range of investments and economic sectors, business risk is more localized and tied to the operational effectiveness of individual businesses or sectors.

For instance, if a particular industry experiences a downturn—perhaps due to a decrease in consumer demand or the introduction of new regulations that increase operational costs—companies within that industry would be more vulnerable to financial losses. This underscores why understanding business risk is essential for both investors and companies within that sector.

The other types of risks mentioned—market, financial, and currency risks—are broader in scope and relate to general economic changes affecting multiple sectors, overall market fluctuations, the management of financial assets and liabilities, or specific international trade impacts, respectively. These do not specifically target the operational factors unique to a single industry as business risk does.