Financial risk management is the practice of economic value in a firm by using financial instruments to manage risk exposure, particularly credit risk and market risk. Other types include currency changes, volatility, sector, liquidity, inflation risks, etc. As in risk management, financial risk management requires identifying its sources, its measurement, and plans to address them.

Risk management can be qualitative and quantitative. As a specialization of risk management), financial risk management focuses on when and how to hedge&action=edit&redlink=1 "Hedge (finance) (not yet written)") the use of financial instruments for costly risk management.

In the banking sector around the world, the Basel Accords are generally adopted by internationally active banks for monitoring, reporting and operational exposure, credit and market risks.

Financial theory (i.e., financial economics) prescribes that a company should take on a project when it increases shareholder value. Financial theory also shows that company managers cannot create value for shareholders, also called their investors, by adopting projects that shareholders could do themselves at the same cost.

When financial risk management is applied, it implies that company managers should not cover risks that investors can cover themselves at the same cost. This notion was captured by the hedging irrelevance proposition: In a perfect market, the firm cannot create value by hedging a risk when the price of bearing that risk inside the firm is the same as the price of carrying it outside the firm.

In practice, financial markets are not likely to be perfect markets.

This suggests that company managers likely have many opportunities to create shareholder value through financial risk management. The trick is to determine which risks are cheaper for the company to manage than shareholders. A general rule, however, is that market risks" give rise to unique company risks" are the best candidates for financial risk management.

Financial risk management concepts change dramatically internationally. "Multinational Corporations" face many different obstacles in overcoming these challenges. There has been some research on the risks companies must take into account when operating in many countries, such as the three types of currency risk for various future time horizons: transaction exposure,[1]​ accounting exposure,[2]​ and economic exposure.[3]​.