What defines 'market risk'?

Market risk is defined as the potential for losses due to fluctuations in market values. This encompasses a variety of factors that can impact the overall financial market environment, including changes in interest rates, stock prices, or commodity prices, among others. Essentially, any event that causes the market price of assets to change can lead to market risk. Investors and firms face this risk because their investments are inherently tied to the broader market movements, which are outside of their control.

In contrast, the other options refer to different types of risks. For instance, losing proprietary information is more aligned with operational or cybersecurity risks rather than market risk. Employee turnover is typically categorized under human resources or operational risks, as it pertains to workforce stability. Lastly, the depreciation of physical assets falls under asset management or liquidity risks, where the value and usability of tangible assets become the focus. These distinctions reinforce the concept that market risk is specifically about the volatility and fluctuations within financial markets, making the definition of market risk distinct and clear-cut.