Which type of risk involves a chance of both loss and gain?

Speculative risk encompasses situations where there is a possibility of both loss and gain. This type of risk is inherent in activities such as investing in stocks, starting a new business, or gambling, where the outcome can result in financial gain as well as financial loss. Unlike pure risk, which only results in loss with no possibility of profit, speculative risk is characterized by uncertainty and the potential for profit in addition to loss.

In the context of insurance and risk management, recognizing the differences between these types of risks is crucial. For instance, pure risks are typically insurable and involve events that could result in only loss, such as property damage from a fire or theft. On the other hand, speculative risks are generally not insurable because they involve situations created by decisions that can lead to both favorable and unfavorable outcomes, making them a more complex area of consideration for individuals and businesses alike.

Thus, the concept of speculative risk is essential for understanding many financial decisions and investment strategies, making it the correct choice in identifying the type of risk that involves a chance of both loss and gain.