What is an example of market risk?

Market risk refers to the potential for losses due to changes in market conditions, such as fluctuations in interest rates, stock prices, and other economic factors that can affect the overall market. An example of market risk is the risk due to changes in interest rates affecting investments. This risk affects a wide range of financial instruments and can lead to decreased investment values or higher borrowing costs, which may negatively impact returns.

In this context, interest rate changes can influence the market environment significantly, making it a relevant illustration of how external economic factors can create risk for investors. Other types of risks, such as those associated with operational errors or local regulations, tend to be more specific to an individual company or operational context rather than reflective of broader market trends, which defines market risk more distinctly.