Financial risk contains two absolute truths. First, it comes in all shapes and sizes. Second, unless you live completely off the grid (or planet), it eventually affects everyone—including you! If you buy merchandise on credit, sell items and provide credit, make loans, pay loans, buy or sell market instruments (like stocks), or generate revenue to cover costs, you incur financial risk. If your activities fall into two or more of these categories, you are probably dealing with significant financial risk.

Given the many ways to create financial risk, most companies carry it in some form. The good news is that finance is one of the most developed areas of risk management—and for good reason. Thousands of banks and financial institutions bet their existence on their ability to measure and manage financial risks. They send money out the door in the hands of customers and hope it will return with interest. Usually, it does. So these risk management methods tend to work pretty well.

Financial risk may be the most studied and treated form of risk, but it certainly harbors some special challenges! Whenever big dollars are at stake in such a direct way, people get all worked up. They want to understand the exact concerns so that they can manage their money and make sound mitigation decisions.

The beauty of dealing with financial risks is that they can be mitigated directly through other financial mechanisms.