Interest rate risk and liquidity risk are:
A) unrelated to one another
B) closely related to one another
C) only related to one another when interest rate levels are high
D) only related to one another when interest rate levels are low

Question

Quizplus · Accepted Answer

Interest rate risk and liquidity risk are closely related because changes in interest rates can affect the liquidity of assets. For example, as interest rates rise, the value of fixed-income securities (like bonds) typically falls, potentially making them harder to sell without incurring a loss. This interconnection shows how interest rate movements can directly impact an asset's liquidity.

Interest Rate Risk and Liquidity Risk Are