What type of risk involves the potential for either loss or gain?

Speculative risk is characterized by the potential for both loss and gain. This type of risk is associated with scenarios where the outcome can result in either a profit or a loss, such as investing in stocks or starting a business venture. Unlike pure risk, which involves situations that can only result in loss (such as natural disasters or theft), speculative risk allows for the possibility of a favorable financial outcome.

Understanding speculative risk is crucial, especially in finance and investing, where individuals and companies weigh the potential for rewards against the inherent risks. This dual nature of speculative risk makes it a fundamental concept in risk management, as it encourages strategic decision-making when assessing investments or business opportunities.