Financial risks and their types

Any business is a risky business. To know what can threaten the entrepreneur, you need to find out what all the risks are.

Financial risk is the possible loss of an organization's part of its assets, less revenue than planned, or the formation of unpredictable costs as a result of financial and operating activities. These risks are quite diverse, and in order to effectively manage them, it is necessary to classify them.

By degree of risk:

- allowable - material losses in an amount not exceeding the profit (characteristic for any business, are a daily attribute of the work process);

- critical - characterized by such losses, in which the funds invested in a particular project or transaction do not pay off;

- catastrophic - partial or complete loss of property of an entrepreneur or firm (the result is bankruptcy).

Consider the main types of financial risks:

1. Market risk determines the likelihood of a decrease in the value of an asset due to changes in the value of currencies, stocks, bonds, interest rates and other.

2. Credit (trade, banking) financial risks - the threat of partial or complete non-fulfillment of obligations by partners or other parties to the agreement. In order to hedge against such a risk, it is possible to attract guarantors who will bear material responsibility together with debtors.

3. Tax - this is a financial risk, in which there may be losses resulting from changes in tax laws, or because of erroneous calculation of tax payments of the entrepreneur himself. To protect yourself from this, it is worth using the services of a professional accountant.

4. Investment financial risks - losses resulting from investment activities. Help to avoid such a problem can investment programs and investment manager.

5. Deposit - are associated with the inability to return deposit bank deposits. Such risks are a consequence of the wrong choice of the bank, so it is worth approaching this issue as seriously as possible.

6. Liquidity risk - losses that are generated in the process of investment projects due to a significant change in the assessment of their quality.

7. Operational financial risks - are formed as a result of technical errors in the production of operations, emergency situations, deliberate and unintentional actions of personnel, equipment malfunctions, etc.

On the basis of the scope of occurrence, the risks are divided into external (independent of the organization's activities) and internal (arising from the work of the company itself). The condition for the emergence of internal risks may be an inefficient asset construction, unqualified employees of the financial department, an incorrect description of economic partners, and much more.

Also, the risks are unpredictable and predictable. In terms of duration, they can be:

• Constant - associated with the impact of permanent factors and exist throughout the life of the enterprise or the timing of the implementation of a particular operation.
• Temporary - appear only at some stages of the operation, divided into short-term and long-term.

Financial risks can also be classified on the basis of their objects as follows:

1. The risks of a particular operation being performed. Include all the financial risks that arise during the conduct of an action.

2. Different areas of economic activity.

3. Financial activities of the organization as a whole. They characterize the whole complex of risks that arise when the company functions.