Sunday, March 15, 2009


when financial institutions talk about market risk ,it is generally in the context of assessing their exposure in commodities , securities or foreign exchange risk is the risk to an institution is financial position resulting from adverse movements in the level or volatility of market prices .market risk is measured by the practice of 'marking to market' .this machanism uses current market prices to calculate the profit or loss that has been made from price movements since the last valuation of the institution is assets and liabilities .the net value of essets and obligations is thereby known and controlled .
but lenders are exposed to market risk in more familiar situations than securities trading .lenders often rely on the value of essets to repay aborrowing .this most crucially arises when aloan has become doubtful and the lender looks to the asale of assets pledged as collateral to repay the debt .The practicality and cost of regular marking to market of assets held as security can be problematical ,but some from of systematic revaluation of assets that from asource of repayment ,even if it is only contingent ,has to be undertaken to ensure that value assumptions are correct .

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