Financial Risk
Financial Risk
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Summary of Financial Risk
The risk borne by an exporter that his foreign customer may be unable or unwilling to pay for the merchandise purchased; the financial risk relates purely to commercial considerations and not to such "political"risks as expropriation or inconvertibility of currency. (Main Author: William J. Miller)
Collateralization Risks
From the International Swaps and Derivatives Association (ISDA): There are a number of risks associated with the establishment and maintenance of collateral programs. Credit risk is the most obvious - see 'credit risk mitigation'. Some of the key risks also referred to in the current survey are described below:
Correlation Risk: In the context of the current survey, the risk that the value of collateral will change substantially and directionally in line with that of the exposure it is intended to secure, thereby reducing its effectiveness as a form of credit risk mitigation (see this concept).
Custodian Risk: A custodian is a third party appointed to safe-keep assets on behalf of account-holders, whose rights to those assets will be shown by entries in a register or similar set of records (typically in computerized form). Custodian risk is the risk of failed or inadequate performance by the custodian.
Issuer Risk: The credit risk associated with securities posted as collateral.
Legal Risk: A sub-category of operational risk [qv], this is the risk that a collateral arrangement will not be enforceable, for instance because of failure to implement a properly documented contract.
Liquidity Risk: As distinct from liquidation risk, the risk that the value a party is able to realize on collateral held is diminished because of prevailing bid-offer spreads, particularly in relation to the amount of collateral to be realized.
Liquidation Risk: As distinct from liquidity risk, the risk that a party will not be able to realize the value of collateral held in a timely fashion.
Operational Risk: Any of a series of risks (including 'legal risk', see deir definition) which can reduce the effectiveness of a collateral arrangement. The definition of operational risk that ISDA uses is: 'The risk of direct or indirect loss resulting from inadequate or failed internal process, people and systems or from external events'. (1)
Resources
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Notes
Taken from 'Operational Risk - The Next Frontier', January 2000, published by ISDA jointly with the British Bankers' Association and Robert Morris Associates. Available from the International Swaps and Derivatives Association.
See Also
Including similar content viewed by others, in case you missed it:
Commercial Risk
Financial Paper
Collateral
Risk Management
Financial Accounting Standards Board
Political Risk
Transfer Risk
Currency Risk
Interest Rate Risk
Financial Solidarity
Hierarchical Display of Financial risk
Finance > Free movement of capital > Financial market
Financial risk
Concept of Financial risk
See the dictionary definition of Financial risk.
Characteristics of Financial risk
Resources
Professional Content and Learning Tools
Lawi offers educational solutions and professional insight, integrating content, tools, and practical technology to promote lifelong learning, personal and professional improvement, and human progress through knowledge. Our collections feature resources and solutions from a wide range of subject areas, from management and finance to law and cybersecurity. This text is only a brief introduction. If you would like us to expand on this content, please let us know in the comments. If you’re finding our platform and newsletters valuable, share it with a colleague or friend, leave a comment and consider subscribing if you haven’t already (thanks!). There are group discounts, gift options, and referral bonuses available.
Translation of Financial risk
Spanish: Riesgo financiero
French: Risque financier
German: Finanzielles Risiko
Italian: Rischio finanziario
Portuguese: Risco financeiro
Polish: Ryzyko finansowe
Thesaurus of Financial risk
Finance > Free movement of capital > Financial market > Financial risk
See Also
Including similar content viewed by others, in case you missed it:
Credit risk
Market risk
Liquidity risk
Default risk
Foreign exchange rate risk
Systematic risk
Sovereign risk
Interest rate risk
Macroprudential risk
Systemic risk
Exchange risk
Loan risk