Financial risk

The issuer's cash flow is not sufficient to meet its financial obligations. It is also known as an additional risk taken by the company's shareholders when the company uses debt and equity

Copyright © 2011 Campbell R. Harvey, Duke University, Fukua Business School of Finance Professor

Financial risk is one of the top priority risk types for each business. Financial risk is caused by changes in the market and changes in the market include many factors. Based on this, financial risk can be categorized into various types such as market risk, credit risk, liquidity risk, operational risk and legal risk. This risk is due to price fluctuation of financial products. Market risk can be divided into target risk and non-target risk. Target risk is caused by changes in stock prices, interest rates, etc. On the other hand, omnidirectional risk may be the risk of fluctuation.

Webster Dictionary defines risk as "predicting and evaluating financial risks and identifying procedures to avoid or minimize their impact." Proper risk management is to identify these risks and address them appropriately to minimize the impact they have on the portfolio. Transactions are gambling and some people say risk management is a fraud because the result is always uncertain. This is correct to some extent. Gambling is defined as "betting uncertain results" in Webster's dictionary. By definition, a transaction is a type of gambling, but by identifying risks, taking advantage of the possibilities and adopting cautious management, traders will find the advantage of succeeding in distinguishing them from those in the casino I can. Any professional gamblers going to casinos can say that your chances of winning are very low. But in trading, you are the only person who needs to beat you.