What type of risk involves variations in market prices?

Market risk pertains to the potential for an investor to experience losses due to fluctuations in market prices. This can be driven by a wide range of factors, including economic changes, political events, shifts in investor sentiment, and broader market trends. Essentially, market risk affects the overall market environment and impacts the value of investments across the board, making it a crucial concept for investors to understand.

When considering risks like credit risk, liquidity risk, and interest rate risk, each addresses specific concerns: credit risk relates to the possibility of a borrower defaulting, liquidity risk deals with the inability to sell an asset without significantly affecting its price, and interest rate risk focuses on the effects of fluctuating interest rates on the value of investments or borrowing costs. While these other risks are important, they do not directly involve the broader market price variability that characterizes market risk.