INTRODUCTION TO MARKET RISK
Market risk refers to change in the market such as
changing interest rates , change in foreign exchange
rates, change in equity prices , change in inflation rates
or change in commodity prices etc that effects positions
held by firms.
For example: Major financial institutions hold various
financial products such as derivatives , equity products
etc.
The value of these positions will change on a day to
day basis based on movements in various market risk
factors . such as interest rate , foreign exchange rates ,
etc.
The risk is that a sudden unexpected move in one of
those risk factors can cause large losses more than what was
expected. This is the risk that is referred to as market
risk and firms will have to effectively measure it and
manage it in order to protect themselves from adverse
effects.
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