Risk and Liability

Risk and Liability

Courses Info

Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes

The meaning of Risk

  • Risk is the probability of damage or a loss occurring
  • Banks lend capital to consumers / firms / other financial institutions, and therefore carry a risk – the risk of the capital not being paid back will cause the bank to suffer a loss
  • The return on an investment being less than the expected return is another risk banks endure
  • Trade can influence interest rates and exchange rates, imposing a market risk

Implications of limited and unlimited liability

Unlimited Liability

A business structure in which the owners are personally liable for any debts and liabilities the firm incurs.

If the business is unable to meet financial obligations, the owners’ personal assets can be taken

Limited Liability

The owner incur losses equal to the amount they invested – they cannot be held liable for any amount exceeding the amount they have invested into the business


Quick Fire Quiz – Knowledge Check

1. Explain what is meant by ‘risk’ (2 marks)

2. Identify and explain two examples of risk occurring in a bank (4 marks)

3. Explain the difference between an Unlimited Liability and Limited Liability business structure (4 marks)


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