What is financial risk?

Financial risk refers specifically to the possibility of losing money on an investment or business venture as a result of changes in financial markets. This encompasses a range of uncertainties that can affect the value of financial instruments or the viability of business operations. The nature of financial risk includes factors such as market fluctuations, credit risk, liquidity risk, and other aspects that can lead to monetary losses.

While other types of risks, such as legal risks from non-compliance, operational risks due to inefficiencies, or specific exposures to changes in interest rates do exist, they are not comprehensive definitions of financial risk. Financial risk broadly integrates these elements under the umbrella of potential negative financial outcomes, particularly driven by market dynamics. This makes option B the most accurate and encompassing choice for defining financial risk.