Financial risk is the possibility of losing money, categorized into four key risks:
Market risk: risk of losses due to factors that impact the performance of financial markets
Change in the price of electricity
Credit risk: risk of default on a debt
A customer goes out of business and does not repay what they owe for previous purchases
Liquidity risk: risk of being unable to meet short term financial demands
There is not enough cash on hand at the end of the month to pay payroll to employees
Operational risk: risk of losses resulting from inadequate procedures, systems or policies
An error in the manufacturing plant causes a batch of inventory to be defective, which must be fixed before shipping
Generally we can break down business risks into being financial or non-financial.
Financial are further broken out into 4 key categories.
Qs: What is an example of market risk?
Qs: What is an example of credit risk?
Qs: What is an example of liquidity risk?
Qs: What is an example of operational risk?