A risk refers to the possibilities of suffering due to a negative or an unexpected consequence. In a simpler way, a risk is something that can lead to any kind of a loss. There may be various kinds of risks that a business can face. Risks can be classified into three broad categories: Financial risk, Business risk and Non Business risk. We will discuss only the Financial Risk in this article.
Financial Risk refers to a risk that can lead to financial or monetary loss to a business. These type of risks usually arise out of the losses and instabilities in the financial market due to the fluctuation in currencies, stock prices and so on.
Types of Financial Risk
As this is a high priority type of risk, hence it is one of the most talked about concerns today. There are five main types of Financial Risks, which are mentioned as follows.
- Market Risk: This type of a risk arises out of the fluctuations in the prices of financial instruments.
- Credit Risk: This risk arise due to the failure of fulfillment of financial obligations towards the counter party.
- Operational Risk: The operational failures give rise to this kind of a risk. This may include technical and management failures.
- Liquidity Risk: The inability to execute transactions leads to this kind of a risk.
- Legal Risk: The risk that arises out of the legal obligations and limitations is known as a legal risk.
