Interest rate risk occurs because of:
A)different maturities of bank assets and liabilities.
B)the volatility of short-term interest rates.
C)the short-term nature of bank borrowing.
D)All contribute to interest rate risk.

Question

Quizplus · Accepted Answer

All of the options contribute to interest rate risk. When a bank's assets have longer maturities than its liabilities, it is exposed to interest rate risk because interest rate changes can affect the value of the bank's assets differently than its liabilities. Short-term interest rate volatility affects a bank's profitability and cash flow, which can also impact its value. Finally, if a bank is reliant on short-term borrowing, it may struggle to roll over its liabilities in a rising interest rate environment, which can also contribute to interest rate risk.

Interest Rate Risk Occurs Because Of