This assignment will discuss the theoretical basis of financial risk, because managers need to be aware that financial risk is present in all business sectors so that they can manage business efficiently and make beneficial investment choices by considering the different types of financial risk relevant to the current economic climate, as well as evaluating the methods available to businesses to manage and looking at a case study where risk management may have failed. Risk is doubt about future gains or losses, so such doubts reveal that some future expectations and their impact cannot be predicted Chorafas (2008). Markowitz, cited in Brigham, Gapenski, and Ehrhardt (1999), argues that portfolio theory can achieve high expected returns on investments with low levels of risk. therefore, the risk can be distributed and consequently eradicated, therefore it does not worry investors, therefore the only risk of concern for managers, is the market risk which cannot be eliminated. However, Arnold (2002), suggests that this fails to state that portfolio risk need not be considered, thus resulting in a problem with the theory, because it uses historical data returns to support decision making about potential investments, and Since risk is about uncertainty it is difficult to calculate future events, so this theory may have gaps. Alternatively Brigham et al. (1999), argues that the CAPM model establishes a causal relationship between risk and return on assets, where investors have the same expectations regarding the expected return and there are no transaction costs and taxes. However, Pike and Neale (1999) suggest that some concerns may arise related to the validity of this model because there are transaction costs and taxes which are sources of… half of the paper… Hillson, D ., & Murray-Webster , R. (2007). "Understanding and managing risk attitude". (2nd ed.). England: Gower Publishing Limited. Hamada, R. S., Bain, G., & Gerrity, T. P. (1998). ''Mastering Finance: Unique Guide to Becoming a Master of Finance''. England: Pearson Education: Financial Times/Prentice Hall.Neale, B., & McElroy, T. (2004). “Corporate Finance: A Value-Based Approach.” England: Pearson Education; Financial Times/Prentice Hall.Pike, R., & Neale, B.(1999). Corporate finance and investments: decisions and strategies. London; New York: Prentice Hall. Voon-Choony, Yap., Hway-Boon, Ong., Kok-Thim, Chan., & Yueh-Sin, Ang. (2010). European journal of economics, finance and administrative science. “Factors Influencing Bank Risk Exposure: Evidence from Malaysia.” Issue 19, extracted from: http://www.eurojournals.com/ejefas_19_09.pdf