Market Risk is best defined as the risk that an investment's value decreases due to market factors such as a recession.

• A. Risk of an investment decreasing in value due to market factors (systematic risk)
• B. Risk of a company failing due to internal mismanagement
• C. Risk of fraud during trading activities
• D. Risk from currency exchange fluctuations

Answer: (A)

Market risk refers to the risk that broad market factors drive investment values down across many assets, such as during a recession. This broad, market-wide influence is known as systematic risk, and it affects a large portion of the market rather than a single company. The statement that best matches this idea describes the risk of an investment decreasing in value due to market factors, i.e., systematic risk. Other options point to different types of risk: a company-specific issue (unsystematic risk), fraud risk, or currency exchange risk. The emphasis here is on factors that impact the entire market rather than issues tied to a single company or to a specific currency.