Financial risk is 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. Financial risk 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).

The main examples of financial risks include:

• Credit risk.
• Liquidity risk.
• Funding risk.
• Investment risk.
• Interest rate risk.
• Currency risk.