Interest rate risk arises from changes in:
A) currency discount rates
B) the value of fixed income securities because of changes in interest rates
C) interest rates caused solely by inflation
D) the value of currency relative to another currency

Question

Quizplus · Accepted Answer

Interest rate risk results from the changes in the value of fixed income securities caused by fluctuations in interest rates. When interest rates rise, the value of fixed income securities decreases, and investors who want to sell those securities will receive lower prices than they anticipated. Similarly, when interest rates decrease, the value of fixed income securities increases, and investors who want to buy those securities will need to pay higher prices than they initially expected. Thus, the changes in interest rates affect the value of fixed income securities and, consequently, represent interest rate risk.

Interest Rate Risk Arises from Changes In