What is market risk defined as?

Market risk is defined as the risk of losses in positions arising from movements in market prices. This encompasses various price fluctuations that may occur in financial markets, affecting investments and trading positions. These price changes can stem from several factors, including changes in interest rates, currency exchange rates, and equity prices. Market risk is inherently linked to the volatility of the market, reflecting the potential for an investment to decrease in value due to market dynamics.

The options related to the borrower's inability to repay loans, inadequate operational processes, and external changes impacting business operations describe different types of risks. Credit risk pertains to a borrower's capacity to repay a loan. Operational risk is linked to failures in internal processes or systems. Lastly, external business risks refer to factors outside an organization that can influence its operations. None of these capture the essence of market risk as effectively as the definition highlighting losses from changes in market prices.