What does market risk refer to?

Market risk specifically relates to the potential for losses in an investment portfolio due to changes in market prices. This encompasses fluctuations in the prices of stocks, bonds, commodities, and other financial instruments. A key characteristic of market risk is that it can affect a wide range of investments simultaneously due to overall market movements, making it a systematic risk that is generally beyond the control of individual investors or corporations.

In contrast, credit default refers to the risk associated with borrowers failing to meet their debt obligations, which is not directly tied to market price movements. Losses stemming from poor financial management are more about internal organizational risk rather than the external market influences. Lastly, the risk of not having enough capital specifically pertains to liquidity and operational risks rather than market price fluctuations. Therefore, the definition of market risk as the risk of investment losses due to market price fluctuations is accurate and highlights the inherent unpredictability of market conditions impacting asset values.