What type of risk involves the potential for loss and the possibility for gain?

The correct choice is speculative risk, which involves situations that can lead to either a loss or a gain. This type of risk is characterized by its uncertainty and the potential for different outcomes. For example, investing in stocks is a speculative risk because the investor may either gain profit if the stock performs well or incur losses if it does not.

Speculative risks are distinct from other types of risk such as pure risk, which only presents the possibility of loss without the upside potential of gain. For instance, a house fire constitutes a pure risk because it can result in loss but does not offer any possibility of financial gain. Understanding this distinction is crucial, particularly in the context of insurance, as insurers are more focused on managing pure risks that can lead to claims.

Homogeneous risk refers to situations where risks are uniform and similar, making them easier to categorize and manage. Adverse risk generally relates to situations where there is a higher likelihood of loss due to factors that might lead to unfavorable outcomes, often classified under pure risk scenarios. Recognizing these classifications helps in understanding how different types of risks are treated in terms of insurance coverage and financial planning.