__________ is the risk that the interest rate will unexpectedly change so that the costs of the liabilities of an FI exceed the earnings on its assets.
A)Default risk
B)Exchange rate risk
C)Interest rate risk
D)Liquidity risk

Question

Quizplus · Accepted Answer

Interest rate risk refers to the possibility of unexpected changes in interest rates, which can impact the profitability of a financial institution (FI). Specifically, if the interest rate increases, the cost of liabilities (such as deposits) will also increase, while the earnings on assets (such as loans) may not increase at the same rate. This can lead to a decline in net interest margin and profitability for the FI. Therefore, interest rate risk is an important risk for FIs to manage and monitor.

__________ Is the Risk That the Interest Rate Will Unexpectedly