The overall financial risk depends upon the ____.

(a) Proportion of debt in the total capital

(b) Both of the above

(c) None of the above

(d) Proportion of equity in the total capital

Answer (a) Proportion of debt in the total capital

Explanation: Financial risk is the chance of losing cash on investment or a business venture. Other normal and particular financial risks incorporate operational risk, liquidity risk, and credit risk. Changes in macro-economic factors also change the financial risks for firms and industries according to the market environment. The larger the debt component in the financial mix, the higher is the financial risk that an organisation has to take upon.

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