What is financial risk? What types does it have?

Financial risks can be roughly divided into eight types.

According to the causes, it can be divided into: credit risk, market risk (including exchange rate risk, interest rate risk and investment risk), liquidity risk, operational risk, legal risk and compliance risk, national risk and reputation risk;

According to market participants' cognition of risk, it can be divided into: subjective risk and objective risk; According to whether financial risks can be dispersed, they can be divided into systematic risks and unsystematic risks.

Let me give you a detailed introduction.

I. Credit risk

Narrow credit risk: the risk of economic loss caused by the counterparty's failure to perform the contract, that is, the risk of default.

Generalized credit risk: the possibility that the actual income of financial institutions deviates from the expected target due to the influence of various uncertain factors on the credit of financial institutions, thus causing financial institutions to suffer losses or gain additional income in their business activities.

Second, market risk.

Narrow sense of market risk: the possible losses of financial institutions' trading positions in financial markets due to adverse changes in market price factors.

Market risk in a broad sense: the possible gains or losses of financial institutions' trading positions in financial markets due to changes in market price factors. Market risk in a broad sense fully considers that the market price may change in a direction that is beneficial to itself and unfavorable to itself, which may bring potential gains or losses.

Three. liquidity risk

Liquidity risk is defined in the Measures for Liquidity Risk Management of Commercial Banks (Trial) issued by China Banking Regulatory Commission on 20 15. Liquidity risk refers to the risk that commercial banks cannot obtain enough funds in time at reasonable cost to pay due debts, fulfill other payment obligations and meet other capital requirements of normal business.

Four. operational risk

Narrow operational risk: the possibility that the operating department of a financial institution will suffer economic losses due to the lack or negligence of internal control and system errors.

Generalized operational risk: all risks of financial institutions except credit risk and market risk.

Verb (abbreviation for verb) legal risk and compliance risk

Legal risk: A special operational risk refers to the possibility that financial institutions may suffer economic losses because contracts and other documents signed with employees or customers violate relevant laws or regulations, or the relevant provisions are not legally mandatory, or they fail to properly perform their legal or regulatory duties towards customers.

Compliance risk: the risk that a bank may be subject to legal sanctions or regulatory penalties, major financial losses or reputation losses due to its failure to comply with laws, regulatory provisions, rules, relevant standards formulated by self-regulatory organizations and codes of conduct applicable to its own business activities.

Intransitive verb country risk

National risk refers to the risk that an economic subject will suffer losses due to economic, political and social changes in other countries when conducting international economic, trade and financial exchanges with non-domestic counterparties.

Seven. Reputation risk

Reputation risk refers to the possibility of financial institutions suffering corresponding economic losses due to negative public comments, such as the loss of customers, the loss of shareholders, the loss of business opportunities and the increase of business costs.