Which of the following is considered a non-financial risk?

Legal risk is indeed classified as a non-financial risk, distinguishing it from risks that are primarily associated with financial variables. Non-financial risks encompass a range of categories that do not directly pertain to market fluctuations, credit defaults, or liquidity issues. Instead, they focus on risks that arise from legal actions, regulatory controls, compliance failures, or the possibility of lawsuits against an organization.

In this context, legal risk can stem from contract disputes, regulatory changes, or any legal liability that could adversely affect an organization. Since it does not involve the loss of financial positions directly, but rather the implications of legal actions or regulatory compliance failures, it is categorized distinctly from the other types of risks listed.

Market risk, credit risk, and liquidity risk are all closely tied to financial outcomes. Market risk relates to the potential for losses due to fluctuations in market prices, credit risk involves the possibility of loss from a counterparty's failure to meet obligations, and liquidity risk refers to the potential inability to sell an asset without significant loss in value. These types of risks are inherently financial, as they directly impact a firm's financial performance and stability.