Financial risk is a type of danger that can result in the loss of capital to interested parties. For governments, this can mean they are unable to control monetary policy and default on bonds or other debt issues. Corporations also face the possibility of default on debt they undertake but may also experience failure in an undertaking that causes a financial burden on the business.
Financial risk for business supports in building the business from the ground up. At some point in any company’s life the business may need to seek outside capital to grow. This need for funding creates a financial risk to both the business and to any investors or stakeholders invested in the company.
The most common methods we use to analyze risks associated with long-term investments—or the stock market as a whole—include: