One of the major concerning factors for all types of businesses across the world is financial risk management. This is the main reason behind the popularity of the Financial Risk Manager Exam. If you are also keen to take this exam, you must know about what is meant by risk and what its various types are. Hence, let’s study about financial risks and its type through this blog.
Definition of Financial Risk
You must be aware that risk can be defined as the possibility of having negative or unexpected results. A firm may have to tackle different types of risk. Broadly speaking, there are three types of risks: financial risk, business risk and non-business risk.
In this blog, we will focus only on financial risk. For every business, financial risk is the highest priority risk. Market movements are the main cause of financial risk. If you enroll at IACT Global for Financial Risk Management course, you will come to know more about these market movements. There are different types of financial risks like credit risk, operational risk, market risk, legal risk and liquidity risk. Let’s discuss each one of them in detail.
- Credit Risk: When you fail to complete counter parties’ obligations, this gives rise to this kind of risk. Credit risk can be further divided into:
- Sovereign Risk: This risk is caused due to tough foreign exchange policies.
- Settlement Risk: This risk is caused due to failure of a party to meet its obligations while the other party makes timely payment.
- Operational Risk: This risk is caused due to technical failures or mismanagement. It is divided into
- Fraud Risk: This arise due to absence of controls
- Model Risk: This is caused due to wrong model application.
- Market Risk: Price movements cause this type of risk. Market risk can be further classified into:
- Directional Risk: This risk is caused due to movement in interest rates, stock price etc.
- Non-Directional Risk: This risk includes volatility risk.
- Legal Risk: This risk is caused due to lawsuits and legal proceedings.
- Liquidity Risk: This risk is caused when you are unable to implement transactions. It is of two types:
- Asset Liquidity Risk: This risk arises when assets are converted into cash during sudden cash requirement.
- Funding Liquidity Risk: This is caused due to daily cash flow.
- After going through these risks, you must be keen to take up the Financial Risk Management course. You can easily register at IACT Global and get Financial Risk Management certification. At IACT Global, you can pursue learning anywhere, anytime.