Financial Risk

Financial Risk – Financial risk refers to the possibility that stakeholders—such as investors, creditors, or organizations—may lose capital or incur financial losses due to unforeseen events, poor decisions, or market fluctuations. It can affect both governments and corporations, impacting their ability to manage finances, implement policies, and meet obligations. Key Types of Financial Risk: Market Risk: Losses due to changes in stock prices, interest rates, or exchange rates. Credit Risk: Risk of a borrower defaulting on debt repayments. Liquidity Risk: Risk of being unable to meet short-term financial obligations. Operational Risk: Losses from failed processes, systems, or human errors.

Example: A corporation that takes a high-interest loan for expansion faces financial risk if project revenues are lower than expected, potentially leading to losses or inability to repay debt