Abstract
Market risk exists with all commodities from the price of oil to that of base metals and precious metals to equities and debt instruments. Interest rate risk and forex risk are market risks that can hit an industrial firm, bank, insurance company, pension fund, or asset management entity. Organizations have cash flow obligations to meet and part of the investments they make as a “war chest” is exposed to market volatility. Bonds are subject to interest rate risk and currency risk. The value of stocks fluctuates as a result of equity price risk, and both debt instruments and stock are exposed to other risk factors against which they must always be ready to position themselves. The lack of confidence is fathering market risk for all players; not only the wrong-doers and the market are no zero-sum game. Furthermore, every investor should be measuring and monitoring interest rate risk. Asset managers and banks that have complex debt instruments in their portfolio and use sophisticated risk profiles should employ more rigorous interest rate risk measurement systems than those based on simple maturity schedules.
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