A type of risk that reflects all negative factors/ developments that can lead to financial losses to an entity. It captures the likelihood that an entity would lose money in relation to its business or investment decisions/ actions. There are many forms of financial risks including such credit risk, liquidity risk, and funding risk.

Financial risk is has to do with the costs of financing and the amount of external funds (debt) an entity incurs to finance its business/ operations.

Generally, this type of risk is perceived as the probability of having a negative and unexpected financial outcomes/ performance due to market volatility or developments (caused by another form of risk, i.e., market risk).