- Market risk is the possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets in which he is involved.
- Market risk, also called “systematic risk,” cannot be eliminated through diversification, though it can be hedged against.
- Sources of market risk include recessions, political turmoil, changes in interest rates, natural disasters and terrorist attacks.
- The most common types of market risks include interest rate risk, equity risk, currency risk and commodity risk.
- Interest rate risk covers the volatility that happens with changing interest rates due to fundamental factors, such as Libor and other central bank announcements related to changes in monetary policies.
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