It refers to a position when a company is unable to meet its fixed financial charges namely interest payment, preference dividend and repayment obligation. It is known as :

Financial Risk

The correct answer is option (2)- Financial Risk.

The situation described, where a company is unable to meet its fixed financial charges like interest payment, preference dividend, and repayment obligation, is known as Financial Risk.

Financial risk refers to a position when a company is unable to meet its fixed financial charges namely interest payment, preference dividend and repayment obligations. Apart from the financial risk, every business has some operating risk (also called business risk). Business risk depends upon fixed operating costs. Higher fixed operating costs result in higher business risk and vice-versa. The total risk depends upon both the business risk and the financial risk. If a firm’s business risk is lower, its capacity to use debt is higher and vice-versa.