What encompasses speculative risk?

Speculative risk involves situations where there is the potential for both loss and gain. This type of risk is typically associated with investments, gambling, and entrepreneurship, where an individual or business may face uncertain outcomes. Unlike pure risks, which only present possibilities of loss with no chance of profit, speculative risks allow for the chance of profit alongside the possibility of a loss.

The idea of including the opportunity for gain is crucial because it differentiates speculative risk from other types of risk involved in insurance and finance. In contexts where financial decisions are made, understanding the nature of these risks is vital for effective investment strategies or business planning.

Since the other options describe scenarios where only financial failure is possible or imply no chance of profit, they do not accurately reflect the definition of speculative risk. Thus, the first option encapsulates the essence of speculative risk through its acknowledgment of both potential losses and potential gains.