Conceptualization of Risk in Financial Markets

Abstract

Risk is the probability of an event and its consequencesH.l Despite the frequency of the use of the term risk there is not formal definition for it. Therefore, common understanding of the term has an inherent subjective character. When we talk about risk with reference to specific organizations it may be defined as an effect of the existing uncertainty in such organizations which may consist of a negative effect or a deviation from the proposed goals. When this aforementioned goal is of a financial nature is when financial risk is present. The above definition is specified in two statements: 1) Financial risk is an event that has not yet occurred and upon which uncertainty exists. 11) The occurrence of an event would have negative (losses) impacts (financial). Departing somewhat from the subjective definitions and getting closer to the regulations on the subject of risk, it should be seen as ""the result of a combination of the probability of an event and its financial impact (loss in monetary units).