ERM Glossary: Market risk

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Within the financial community, market risk relates to risks arising from changes in investment market values of assets. This includes risks relating to movements in the mark-to-market (or ‘mark-to-model’) values placed on assets and liabilities which have no quoted market value. Market risk is generally deemed to include risks relating to changes in interest rates, equity and property prices and foreign exchange rates.

Some commentators, particularly ones from outside the financial services industry, use terms such as financial risk and economic risk to cover aspects of as market risk as defined above. They would then use the term ‘market risk’ to cover, say, risks relating to changing sales or margins, or other business activities resulting from changes in the market(s) in which the business operates.

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