Market Risk Is Defined as the Risk Related to the Uncertainty

question 37

True/False

Market risk is defined as the risk related to the uncertainty of an FI's earnings on its trading portfolio caused by changes in market conditions.

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Definitions:

EAR

The Effective Annual Rate, a measurement of interest that takes into account the effect of compounding over the period of time it is applied.

Compounded Monthly

The process of calculating interest on an initial principal, which also includes all of the accumulated interest from previous periods on a loan or investment, with the compounding occurring on a monthly basis.

Effective Annual Rate

The interest rate on an investment or loan that considers the effects of compounding over a given time period.

Compounded Quarterly

An investment or loan interest calculation method where interest is added to the principal four times a year.