The term risk signifies the uncertainty of the future developments in risk factors (for example, interest rate curves, stock prices, foreign exchange rates, volatilities, etc.) resulting in a negative deviation of the quantity of interest (e.g. the value of a portfolio) from a certain reference value. Or expressed in terms of a bank balance sheet, risk is the possibility that the value of assets decreases or that the value of liabilities increases. Among all the conceivable types of risk, for example, market risk, credit risk, operational risk, legal risk, etc., market risk and credit risk are those which are most commonly traded via various financial instruments.
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