Types of financial risk
Market risk concerns changes in prices or rates. Credit risk concerns a counterparty failing to meet obligations. Liquidity risk concerns difficulty raising cash or exiting a position. Operational risk concerns failures in processes, people, systems or external events.
How risk is described
Historical variability, stress scenarios, concentration measures and cash-flow analysis describe different aspects of risk. They depend on the data and assumptions used. A low measured risk does not rule out large losses.
An illustrative business example
A fictional manufacturer with receivables due after 90 days and supplier bills due after 30 days can face a cash timing gap despite reporting a profit. A cash-flow schedule can make that gap visible. It does not prove the business is financially safe.
Limits and context
Historical relationships can change. Stress tests omit scenarios, accounting data can be stale, and models can understate rare events. This page makes no performance claim about a named issuer and does not recommend a security or portfolio allocation.