What does 'financial risk' mean?

Financial risk refers to the potential for losing money on an investment, which can occur due to a variety of factors. This includes fluctuations in the market, which can affect the overall price of securities, as well as the performance of individual companies, which may not meet investor expectations due to operational challenges or economic conditions. Understanding this risk is crucial for investors, as it enables them to assess how external and internal factors can impact their investment outcomes. By recognizing financial risk, investors can make more informed decisions and potentially implement strategies to mitigate losses.

The other options do not fully encapsulate the concept of financial risk. Legal liabilities address regulatory and compliance risks, while the increase in stock value speaks to investment success rather than the risks associated. Economic factors, while relevant, describe a wider array of external variables beyond the financial specifics that could lead to losses or gains. Therefore, option A precisely captures the essence of what financial risk entails in the context of investing.