Financial risk

1.

Financial risk in the Capital asset pricing model means the component of total risk resulting from a firm’s capital structure.

The more net debt in the capital structure, the greater the financial risk.

2.

The term is also used more generally to mean the wider risk of uncertain financial outcomes.

For example the risks arising from not knowing the home currency value of a foreign currency receipt in the future, or the uncertainty regarding the size of future interest payments on floating rate borrowings.

See also

• Asset beta
• Business risk
• Capital asset pricing model
• Equity risk
• Financial price risk
• Operational risk
• Ungeared beta
• Guide to risk management

Other links

Masterclass: Measuring financial risk, Will Spinney, The Treasurer, July/August 2012