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Primary exposures
Market, credit, and liquidity risk dominate most portfolios.
Financial riskfundamentals
Safeguard revenue, capital, and cash flow.
Explore what financial risk means for organisations, including market, credit, and liquidity exposure plus mitigation tactics.
What is financial risk?
Financial risk is the chance of losing value due to market swings, credit defaults, liquidity constraints, or poor capital planning.
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Focus
Cash flow, revenue, and capital adequacy show how resilient you are.
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Volatility
Use percentages to express movement in rates, FX, or demand.
WHY IT MATTERS
Why financial risk visibility protects your organisation
Protects liquidity. Monitoring cash conversion, working capital, and funding sources keeps operations stable.
Supports investment. Financial risk assessments help leadership allocate capital and justify new initiatives.
Builds resilience. Understanding volatility drivers helps you scenario plan and pivot faster.
FRAMEWORK
How to structure financial risk management
- Define appetite Document acceptable leverage, liquidity buffers, and credit exposure.
- Instrument data Connect finance systems, treasury tools, and forecasting models to real-time dashboards.
- Align governance Ensure CFOs, treasury, and risk committees share scenarios and approvals.
CADENCE
How to measure and report financial risk
- Monitor markets Track FX, interest rates, inflation, and commodity prices relevant to your business.
- Stress test Model downside cases on revenue, cost, and capital structures.
- Watch counterparties Review customer credit, supplier solvency, and lender covenants regularly.
- Report heatmaps Share traffic-light dashboards with boards and investors showing trendlines and mitigations.
Financial risk quick wins
Update liquidity ladder
List cash on hand, facilities, and expected inflows/outflows by week.
Refresh hedging policy
Confirm how you mitigate FX or commodity swings and who can approve hedges.
Link to strategy
Ensure every major initiative lists financial risk assumptions and mitigations.
FINANCIAL RISK GLOSSARY SNAPSHOT
Financial risk glossary snapshot
Market risk. Exposure to price movements in currencies, rates, or commodities.
Credit risk. The chance that a counterparty fails to pay.
Liquidity risk. Inability to meet obligations when due without significant loss.
FAQS
Financial risk FAQs
How do we assess financial vulnerability?
Blend historical performance, forecast scenarios, and sensitivity analysis across revenue, cost, and funding drivers.
What metrics track financial risk?
Cash runway, debt service coverage, receivables aging, covenant headroom, and hedging effectiveness are common.
Who owns financial risk?
Finance teams model it, but boards and executives set appetite and approve responses.
How does residual risk apply?
After hedges and controls, measure what financial exposure remains (see residual risk guide).
Drova RunSafe keeps risk registers, controls, and governance tasks in one place.
Ready to align financial risk and strategy?
GRC 101 HUB
Explore related topics
Risk management basics
See how financial risk fits into enterprise risk.
Strategic risk guide
Link financial assumptions to strategy decisions.
Risk appetite overview
Set limits for leverage and liquidity.
Risk controls toolkit
Design controls that protect assets.
Residual risk explainer
Measure what remains after hedges.
Risk register template
Record financial risk owners and status.
