Risk Consulting
Market Risk
Market risk is the risk of loss on an investment due to changes in the value of the securities or financial instruments that make up the investment. It is also known as systematic risk or undiversifiable risk, as it affects all
securities in the market to some extent, rather than just individual securities or investments. Market risk is caused by a variety of factors, such as economic conditions, political events, and changes in interest rates, among
others. It cannot be eliminated through diversification, but it can be managed through the use of financial instruments such as futures, options, and swaps, or through the use of risk management techniques such as hedging.
“Market risk is the risk of loss due to changes in the market value of a portfolio, resulting from movements in market prices, such as changes in interest rates, foreign exchange rates, and equity and commodity prices.” -
Financial Stability Oversight Council
Types of Market Risk
There are several types of market risk, including:
- Interest rate risk: The risk of loss due to changes in interest rates. For example, if you own a bond with a fixed interest rate and market interest rates rise, the price of your bond will fall, resulting in a loss.
- Foreign exchange risk: The risk of loss due to changes in exchange rates. For example, if you own an investment denominated in a foreign currency and the value of that currency falls relative to your home currency, the value
of your investment will also fall.
- Equity risk: The risk of loss due to changes in the value of equities or stocks. For example, if the stock market declines, the value of your stock portfolio will also decline.
- Commodity risk: The risk of loss due to changes in the price of commodities such as oil, gold, or agricultural products.
- Inflation risk: The risk of loss due to changes in the purchasing power of money. If the rate of inflation is higher than the rate of return on your investments, the real value of your investments will decline.
- Credit risk: The risk of loss due to the default or creditworthiness of the issuer of a security. For example, if a company you have invested in defaults on its debt, the value of its bonds will decline.
What we offer in Market Risk Consulting
In Market Risk Consulting we offer a range of services to help clients manage and mitigate market risk. These services include:
- Risk assessment: Our Consulting helps clients assess the level of market risk they are exposed to, and identify the sources of that risk.
- Risk management: Our Consulting helps clients develop and implement risk management strategies, such as the use of financial instruments or risk-mitigating technologies, to manage market risk.
- Risk modeling: Our Consulting helps clients build and maintain risk models to better understand and manage market risk.
- Regulatory compliance: Our Consulting helps clients navigate complex regulatory requirements related to market risk, and ensure compliance with relevant laws and regulations.
- Training and education: Our Consulting provides training and education to clients on market risk management practices and techniques.
