ABSTRACT
This chapter examines the significance of market risk as well as the various types of market risk. It describes the statistical methods for determining market risk, the regulatory approach to market risk, and the risk-adjusted return on capital measurement (RAROC). Islamic banks have a diverse range of business lines, which enhances their profitability greatly. Nonetheless, every industry is susceptible to fluctuations in current market prices, foreign exchange rates, etc. An efficient risk management will limit losses caused by market variable fluctuations. To effectively manage market risk, the portfolio must be reevaluated frequently based on current market conditions. It also necessitates the use of a precise accounting measure of an Islamic bank’s portfolio, risk identification and measurement, risk limitations, and position monitoring against these limits.
