Reinvestment risk occurs when a financial institution holds longer-term assets relative to liabilities and faces uncertainty about the interest rate at which it can reinvest funds borrowed over a longer period.

Question

Quizplus · Accepted Answer

Reinvestment risk primarily concerns the risk that future proceeds from investments may have to be reinvested at a lower interest rate, not the uncertainty about the interest rate for reinvesting funds borrowed over a longer period. It is more directly related to the risk of reinvesting the proceeds from bonds or other fixed-income securities.

Reinvestment Risk Occurs When a Financial Institution Holds Longer-Term Assets