In finance, risk refers to the chance that an investment's actual return will differ from its expected return. The concept of risk is important in finance because investors typically demand higher returns for taking on greater risks.

There are various types of financial risks, including:

Market risk: the risk that the value of an investment will decline due to factors affecting the entire market or a particular sector.

Credit risk: the risk that a borrower will default on their debt obligations, resulting in a loss for the lender.

Liquidity risk: the risk that an investment cannot be sold quickly enough to prevent a loss or to meet cash needs.

Operational risk: the risk of loss resulting from inadequate or failed internal processes, systems, or human error.

Interest rate risk: the risk that changes in interest rates will affect the value of an investment.

Investors can manage risk by diversifying their investments, selecting investments with lower risk profiles, and using financial instruments such as options and futures to hedge against potential losses.