Define market risk.

Market risk refers specifically to the potential for losses in financial assets due to fluctuations in market prices. This encompasses risks from various sources, including changes in interest rates, stock prices, currency exchange rates, and commodity prices. When faced with adverse price movements, the value of investments can decrease, leading to financial losses. Therefore, defining market risk as the risk of adverse price movements in financial markets captures its essence.

The other definitions do not align with the concept of market risk. Operational losses pertain to issues within internal processes, liquidity risk is about the inability to meet short-term obligations due to lack of cash flow, and credit risk involves the likelihood that a borrower will default on a loan. Each of these risks represents a different category of financial risk, separate from the price volatility that characterizes market risk.