Financial risk is an umbrella term for multiple types of risk associated with financing, including financial transactions that include company loans in risk of default Risk is a term often used to imply downside risk, meaning the uncertainty of a return and the potential for financial loss.
A science has evolved around managing market and financial risk under the general title of modern portfolio theory initiated by Dr. Harry Markowitz in 1952 with his article, "Portfolio Selection". In modern portfolio theory, the variance (or standard deviation) of a portfolio is used as the definition of risk.
At its most basic level, risk is defined as the probability of not achieving, or reaching, certain outcomes (goals). Risk is measured in terms of the effect that an event will have on the degree of uncertainty of reaching stated objectives.
