Financial risks refer to the potential for losing money or facing financial losses due to various factors. These risks can arise from market fluctuations, credit issues, or operational challenges. For example, if a company invests in stocks, a sudden drop in the market can lead to significant losses. Similarly, if a borrower defaults on a loan, the lender faces credit risk. Another aspect of financial risks is liquidity risk, which occurs when an entity cannot quickly convert assets into cash without a substantial loss in value. This can affect individuals, businesses, and even governments, impacting their ability to meet financial obligations. Understanding these risks is crucial for effective financial management.