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Definition

Market Risk

The risk incurred by the FIs (Financial institutions) in the trading of assets and liabilities due to changes in interest rates, exchange rates and other assets prices.

Market risk arises when a FI takes a buy or sell position of bonds, equities, commodities or derivatives in the market. Normally in recent times FIs specially banking firms are heavily engaged in the trading of securities in the market. Therefore if the FIs takes buy or sell decision of such assets, the prices of these securities could be affected by the change interest rate.

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