what is financial risk 
financial risk is the possibility of losing money on an investment or a business venture some more common and distinct financial risks include credit risk liquidity risk and operational risk financial risk is a type of danger that can result in the loss of capital to interested parties this can mean that governments are unable to control monetary policy and will default on bonds or other debt issues corporations also face the possibility of default on debt they undertake but they might also experience failure in an undertaking that causes a financial burden on the business understanding financial risks for businessesfinancial markets face risk due to various macroeconomic forces changes to the market interest rate and the possibility of default by sectors or large corporations individuals face financial risk when they make decisions that might jeopardize their incomes or ability to pay a debt they ve assumed financial risks are everywhere and they come in many shapes and sizes affecting nearly everyone knowing the dangers and how to protect yourself won t eliminate the risk but it can mitigate the harm and reduce the chances of a negative outcome it s expensive to build a business from the ground up the company might have to seek outside capital to grow and this need for funding creates a financial risk to both the business and to any investors or stakeholders invested in the company credit risk also known as default risk is the danger associated with borrowing money the borrower will likely default should they become unable to repay the loan investors affected by credit risk suffer from decreased income from loan repayments as well as lost principal and interest creditors may also experience a rise in costs for the collection of debt it s referred to as a specific risk when only one or a handful of companies are struggling this danger related to a company or small group of companies includes issues related to capital structure financial transactions and exposure to default the term is typically used to reflect an investor s uncertainty about collecting returns and the accompanying potential for monetary loss businesses can experience operational risk when they have poor management or flawed financial reasoning this is the risk of failing to succeed in its undertakings and it s based on internal factors many analyses identify at least five types of financial risk market risk credit risk liquidity risk operational risk and legal risk 