In this article, we are going to learn about market risk. When prices and rates change in the market, the potential for a loss occurs, commonly known as market risk. There are four types of market risk: interest rate risk, equity price risk, exchange rate risk, and commodity price risk.

In addition, market risk is driven by general market risk and specific market risk. Let’s go back to market risk and see an example. Let’s say that one of our CuriouStem members bought a house. One month after, a waste disposal facility was built near the home. As a result, the value of the property that our member bought decreases. In this example, the decrease in value of the property is the potential for loss that is mentioned earlier. Of course, there are other risks like a natural disaster that can affect the property's value. For companies, it is a more complicated process because they invest their money in various ways. Big companies own different types of assets, and they have the potential for loss in each asset which they own. For banks, exchange rate, interest rate, and inflation risks are the typical market risks.

As shown in these examples, market risk varies depending on who the investor is. Furthermore, interest rate risk, equity price risk, exchange rate risk, and commodity price risk interact with each other. This makes it difficult for risk managers to find out the potential for loss. I hope this topic was interesting for all of you.