Market price risk
A position can be affected by interest rates, exchange rates, equity or commodity prices and related factors. Identify the variable, position, amount and horizon before assessing its effect. This trading or business-exposure meaning is broader than systematic market risk in a CAPM discussion, where the term concerns risk relative to the market portfolio. A rate change can create a gain for one position and a loss for another. Hedging and diversification can alter particular exposures but introduce costs, mismatches or other risks.
Worked example
A manufacturer with an unpriced commodity requirement faces higher input cost if the market price rises. Its exposure differs from the beta of a diversified equity portfolio.
Common mistake
Using market risk without stating which meaning applies or assuming every market movement affects all positions adversely.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FM | Supporting | September 2026–June 2027 |