Economics Financial Markets Questions
Market risk refers to the potential for financial losses due to the unpredictable fluctuations in the overall market conditions. It is the risk that arises from factors such as changes in interest rates, exchange rates, commodity prices, and stock market volatility. Market risk affects all participants in the financial markets, including investors, traders, and financial institutions. It is inherent in any investment or trading activity and cannot be eliminated entirely. Investors and institutions manage market risk by diversifying their portfolios, hedging their positions, and using risk management tools such as derivatives.