May 28, 2022

SB-Accounting

Accounting + Finance Blog

LEARN ABOUT TYPES OF FINANCE RISK THAT CAN AFFECT YOUR BUSINESS

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Finance risk has been defined as the probability of losing an investment. Scanning finance risk is very important for your business. Money is seen as the lifeblood of a business. without money or fund, your business may go into extinction.

The following are types of financial risks that you should set your eyes on:

Asset-backed risk

This is the risk that a change in one or more assets on fixed charged security will have a significant effect on the value of the security. Fixed charged securities are securities on that their collateral is on a particular asset(s) of a business.

Credit risk

Credit risk, also known as default risk, is the risk that borrowers going to default in the payment of principal and interest.

Liquidity risk

Liquidity risk is the risk that security or asset will not be sold on time to make capital gains. Liquidity risk can be classified into Asset Liquidity Risk and Funding Liquidity Risk.

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Asset Liquidity risk is the risk that an asset may not be sold due to insufficient liquidity on the part of the buyer.

Funding liquidity risk is the risk that a business may not meet its current liabilities as they fail due.

Market risk

This occurs in the stock exchange market. It is the risk that prices of shares will rise when you want to buy them or will fall when you want to sell them.

Operational Risk:

Operational risk is the risk that a business will wound up due to mismanagement or technical failures. There are two types: fraud risk and model risk.

Fraud risk is the risk that fraud may occur due to loopholes in the internal control of a business.

Model risk is the risk that a business operation will fail as a result of an incorrect model applied in carrying out a particular operation.

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