What are the major financial risks which may adversely affect an organization?

The risk which has some financial impact on the business entity is treated as financial risk. The major financial risks which may adversely affect an organisation are as follows: Market Risk: This type of risk is associated with market ups and down. The market risks may be Absolute Risk (when it can be measured in rupee/currency term) and Relative Risk (relative to bench mark index). Hence the market risk may be defined as the risk to a firm due to the adverse changes in interest rates, currency rates, equity prices and commodity prices. Interest Rate Risk: The financial assets which are connected with interest factors such as bonds/debentures, faces the interest rate risk. Interest rate risk adversely affects value of fixed income securities. Any increase in the interest reduces the price of bonds and debts instruments in debt market and vice versa. Currency Risk: The volatility in the currency rates is called the currency risk. These risks affect the firms which have international operations of business and the quantum of the risk depends on the nature and extent of transactions with the external market. Equity Risk: It means the depreciation in one's investment due to the change in market index. Beta (β) of a stock tells us the market risk of that stock and it is associated with the day-to-day fluctuations in the market. Commodity Risk: This type of risk is associated with the absolute changes in the price of the commodity. Since commodities are physical assets, hence the prices are changed on account of the demand and supply factor. Credit Risk: When a counter party is unable or unwilling to fulfil their contractual obligation, the credit risk arises. This type of risk is related to the probability of default and recovery date.