In the context of investments, what does the term "market risk" refer to?

The term "market risk" specifically refers to the risk associated with fluctuations in market price. This type of risk is intrinsic to the overall market and can affect the value of all securities, irrespective of the individual characteristics of a security or asset. Essentially, market risk arises from changes in factors such as economic conditions, geopolitical events, or changes in investor sentiment, which can lead to price volatility.

For instance, even well-performing companies may see their stock prices drop due to market-wide sell-offs, regardless of their operational performance or financial health. This highlights that market risk is systematic and cannot be eliminated through diversification within a portfolio; it influences the broad market and, therefore, can impact all investments to some degree.

Other options address different types of risks, but they are not synonymous with market risk. Loss from a portfolio of investments can stem from various factors, including management decisions or asset selection, but does not inherently capture the essence of market risk itself. Interest rate changes primarily relate to interest rate risk, which affects fixed-income securities more directly rather than the overall market. Lastly, default risk specifically pertains to the likelihood that a borrower will fail to meet their obligations and is particularly relevant for fixed-income securities, not the broader market context.