How does market risk affect a bank?

Market risk affects a bank by influencing the value of its assets and liabilities due to fluctuations in interest rates, exchange rates, and market prices. These changes can lead to potential losses in trading portfoliOS and impact the bank's overall financial stability. Additionally, heightened market risk can affect a bank's liquidity and capital adequacy, ultimately influencing its ability to meet regulatory requirements and maintain investor confidence. Consequently, effective risk management strategies are essential for mitigating these risks and ensuring long-term profitability.