Market risk is the risk that the value of an investment will decrease due to moves in market factors. The four standard market risk factors are:

• Equity risk, or the risk that stock prices will change.
• Interest rate risk, or the risk that interest rates will change.
• Currency risk, or the risk that foreign exchange rates will change.
• Commodity risk, or the risk that commodity prices (i.e. grains, metals, etc.) will change.

Sometimes, a fifth risk factor is also considered:

• Equity index risk, or the risk that stock or other index prices will change.

Measuring

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Market risk is typically measured using a Value at Risk methodology. Market risk can also be contrasted with Specific risk, which measures the risk of a decrease in one's investment due to a change in a specific industry or sector, as opposed to a market-wide move.

Notes on Market Risk for banks can be downloaded from www.nalin.ca

Use in annual reports

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A section on market risk is mandated by the SEC in all annual reports submitted on Form 10-K. The company must detail how its own results may depend directly on financial markets. This is designed to show, for example, an investor who believes he is investing in a normal milk company, that the company is in fact also carrying out non-dairy activities such as investing in complex derivatives or foreign exchange futures.

See also

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• Credit risk
• Legal risk
• Liquidity risk
• Operational risk
• Volatility risk
• Risk modeling

Risk in Finance

Markrisiko | Markedsrisiko | Marktrisiko | Risque de marché | Рыночный риск | 市場風險