Liquidity risk also arises from the bank's failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. As with interest rate risk, many banks capture liquidity risk under a broader category of market risk. Liquidity risk, like credit risk, is a recognizable risk associated with banking. The nature of liquidity risk, however, has changed in recent years. Price Risk Price risk is the risk to earnings or capital arising from changes in the value of portfolios of financial instruments.
Many banks use the term price risk interchangeably with market risk.
Foreign Exchange Risk Foreign Exchange risk is the risk to earnings or capital arising from movement of foreign exchange rates. This risk is found in cross-border investing and operating activities. Foreign exchange risk is also known as translation risk and it is sometimes captured as a component of market risk. Accounting conventions require quarterly revaluation of these accounts at current spot rates. This revaluation translates the foreign denominated accounts into U.S. dollar terms.