What type of risk represents the possibility of a reduction in value?

Pure risk is defined as the type of risk that involves situations that can only result in a loss or no loss; there is no possibility of gaining from the event. This means that if the event occurs, it leads to a decrease in value or asset loss. This is characteristic of risks such as natural disasters, theft, or accidents, where the risk taken does not have a potential for profit.

In contrast, speculative risk involves both the chance of gain and the chance of loss, commonly associated with investments and business ventures. Investment risk specifically refers to the uncertainty in the value of an asset or investment, focusing more on market fluctuations rather than the solely negative outcomes associated with pure risk. Operational risk pertains to risks arising from operational failures or inefficiencies in an organization, affecting its ability to conduct business effectively.

Thus, the defining feature of pure risk highlights its unique position: it centers solely on the potential for loss, making it the correct answer in identifying the type of risk that represents the possibility of a reduction in value.