CHAPTER XIII 

 RISKS 



197. Risks versus the Rate of Interest in Forestry. The 



risks to which forest property is exposed tend to discourage 

 the investment of funds in forest production, in the same manner 

 that similar risks restrain investors in other enterprises. This 

 tendency is expressed by an increase in the basic rate of interest 

 at which capital will seek investment in forestry (p per cent). 

 A high rate of interest is the expression of a fear entertained for 

 the safety of the principal. The use of such a rate gives very 

 low expectation values for probable future income. 



When the per cent which can be earned by forest enterprises 

 is lower than the rate of interest demanded, capital is presum- 

 ably unwilling to invest in forestry because the average risk 

 of loss exceeds the probable income. Should individuals still 

 be willing to undertake forestry, they do so because they place 

 a lower estimate upon this risk than that commonly prevailing, 

 or expect to combat it by effectual preventive measures; hence 

 their individual "rate of interest" is gauged proportionally 

 lower and indicates possible profit. 



198. The Character of Risks in Forestry. Risks may be 

 classed as physical, moral and financial. Physical risks are 

 those incurred through the operation of the forces of nature. 

 In case of fire, the physical risk is greatly increased by the addi- 

 tion of a moral risk. Moral risks are those arising through 

 possible human actions, either deliberate or accidental. Finan- 

 cial risks include both physical and moral elements, since all 

 risks are measured by the probable financial losses that may be 

 inflicted. But the risk of loss of profits exists quite independent 

 of these other factors, and is influenced by changing economic 

 conditions, such as demand, prices, future taxation and any other 



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