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* Classification of financial risks
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Classification of financial risks

Let's continue to consider classification of financial risks on the following main signs:

2. According to the characterized object the following groups of financial risks are identified:

  • Risk of an individual financial transaction. It sets out the full range of financial risks inherent in a particular financial transaction (e.g. risk inherent in the acquisition of a particular share);
  • Risk of various types of financial activities (e.g. risk of investment or credit activity of an enterprise);
  • Risk of financial activity of the enterprise as a whole. The complex of different types of risks inherent in the financial activity of the enterprise is determined by the specifics of the organizational and legal form of its activity, the structure of capital, the composition of assets, the ratio of constant and variable costs, etc.

3. On set of the studied tools:

  • Individual financial risk. It describes the cumulative risk inherent in individual financial instruments;
  • Portfolio financial risk. It describes the aggregate risk inherent in a set of single-function financial instruments integrated into a portfolio (e.g., an enterprise 's loan portfolio, its investment portfolio, etc.).

4. On complexity of a research:

  • Simple financial risk. It characterizes a type of financial risk that is not dismembered into individual subspecies of it. An example of a simple financial risk is an inflationary risk;
  • Difficult financial risk. It characterizes a type of financial risk that consists of a set of subspecies under consideration. An example of a complex financial risk is investment risk (for example, investment project risk).

5. By source, the following groups of financial risks are identified:

  • External, systematic, or market risk (all terms define this risk as business-independent). This type of risk is common to all financial actors and all types of financial transactions. It occurs when certain stages of the economic cycle change, financial market conditions change and in a number of other similar cases, which the enterprise cannot influence in the course of its activities. This risk group may include inflation risk, interest rate risk, currency risk, tax risk and partly investment risk (when the macroeconomic conditions of investment change);
  • Internal, unsystematic, or specific risk (all terms define this financial risk as dependent on the activity of a particular enterprise). It can be linked to unskilled financial management, inefficient asset and capital structures, excessive commitment to risky (aggressive) high-return financial transactions, undervaluation of business partners, and other similar factors, the negative effects of which are largely preventable through effective financial risk management.
Dividing financial risks into systematic and non-systematic risks is one of the important starting points of risk management theory.

6. By financial impact all risks are divided into the following groups:

  • Risk involving only economic losses. With this type of risk, the financial consequences can only be negative;
  • Risk resulting in loss of profits. It describes a situation where an enterprise, for objective and subjective reasons, cannot carry out a planned financial transaction (for example, if the credit rating is reduced, the enterprise cannot obtain the necessary credit and use the effect of financial leverage);
  • Risk resulting in both economic losses and additional revenues. In the literature, this type of financial risk is often referred to as "speculative financial risk," as it is associated with the conduct of speculative (aggressive) financial transactions. However, this term (in such a link) does not seem to be entirely accurate, as this type of risk is not unique to speculative financial transactions (for example, the risk of a real investment project, the yield of which in the operational stage may be lower or higher than the estimated level).

7. By the nature of the manifestation over time, two groups of financial risks are identified:

  • Constant financial risk. It is characteristic of the entire period of the financial transaction and is associated with persistent factors. An example of such financial risk is interest rate risk, currency risk, etc.
  • Temporary financial risk. It describes a permanent risk that occurs only at certain stages of the financial transaction. An example of this type of financial risk is the insolvency risk of a well-functioning enterprise.

8. By financial loss level, risks fall into the following groups:

  • Admissible financial risk. It describes a risk for which the financial loss does not exceed the estimated profit under the financial transaction;
  • Critical financial risk. It describes a risk whose financial loss does not exceed the estimated gross income of the financial transaction;
  • Catastrophic financial risk. It describes a risk for which financial losses are determined by partial or total loss of equity (this type of risk may be accompanied by loss of debt capital).

9. As far as possible, financial risks fall into the following two groups:

  • The predicted financial risk. He characterizes the types of risks associated with cyclical development of the economy, changing stages of financial market conditions, predictable development of competition, etc., predictability of financial risks is relative, because forecasting with 100% result excludes the phenomenon in question from the category of risks. An example of projected financial risks is inflation risk, interest rate risk and some other types of risk (in the short term);
  • Not predicted financial risk. It describes the types of financial risks that are completely unpredictable. Examples of such risks are force majeure group risks, tax risk and some others.
According to this classification, financial risks are also classified as regulated and unregulated within the enterprise.

10. Where possible, insurance financial risks are divided into two groups:

  • The insured financial risk. These include risks that can be transferred under external insurance to the respective insurance organizations (according to the nomenclature of financial risks they accept for insurance);
  • Uninsurable financial risk. These include those types for which there is no supply of relevant insurance products on the insurance market.
The composition of the risks of these two groups under consideration is very variable and is connected not only with the possibility of forecasting them, but also with the efficiency of carrying out certain types of insurance operations in specific economic conditions under the established forms of state regulation of insurance activities.