The common sources of risk those affect both firms and their shareholders are enumerated in the following chart -

***Popular sources of risk affection financial managers and shareholders***

# (A) Firm-specific Risks :-
**1. Buiness risk:- ** It is the chance that the firm will be unable to cover its operating costs. Level is driven by the firm's revenue stability and the struct ure of its operating costs (fixed versus variable).
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2. Financial risk: -** Financial risk is the chance that the firm will be unable to cover its financial obligations. Level is driver by the predicatbility of the firm's operating cash flows and its fixed cost financial obligations.

# ***(B) Shareholder-specific Risks :-***
***1. Interest rate risk :-*** The chance that changes in interest rates will adversely affect the value of an investment is called interest rate. Most investment lose value when the interest rate rises and increase in value it falla.

***2. Liqidity risk :-*** It is the chance that an investment cannot be easily liquidated at a reasonable prrice. Liquidity is significantly affected by the size and depth of the market in which an investment is customarily traded.

***3. Market risk :-*** It is the chance that the value of an investment will decline because of market factors that are independent of the investment ( such as economic, political and social events). In general, the more a given investment's value responds to the market, the greater its risk; the less it responds, the smaller its risk.

# ***(C) Firm and Shareholder Risks :-*** 
***1. Event risk :-*** Event risk refers to the chance that a totally unexpected event will have a significant effect on the value of the firm or a specific investment. These infrequent events, such as government-mandated withdrawal of a popular prescription drug, typically affect only a small group of firms or investments.

***2. Exchange rate risk :-*** It is the exposure of future expected cash flows to fluctuations in the currency exchange  rate. The greater the chance of undesirable exchange rate fluctuations, the greater the riskof the cash flows and therefore the lower the vcalue of the firm or investment.

***3. Purchasing-power risk :-*** It refers to the chance that changing price levels caised by inflation or deflation in the economy will adversely affect the firm's or investment's cash flows and value. Typically, firms or investments with cash flows that move with general price level have a low purchasing-power rissk aand those with cash flows that do not move with general price level have a high purchasing-power risk.
***4. Tax risk :-*** The chance that unfavorable changes in tax laws will occur is called tax risk. Firms and investment with values that arer sensitive to tax law changes are more risky.