A risk has two components: uncertainty and exposure. Interest rate risk is therefore a risk to the earnings or market value of a portfolio due to

Question

Quizplus · Accepted Answer

Interest rate risk is a risk to the earnings or market value of a portfolio due to uncertain future interest rates. Future interest rates are uncertain and unpredictable. Therefore, an exposure to interest rates leads to a risk.
Key Takeaway: If future interest rates can be forecast and anticipated, then the level of risk can be reduced.

A Risk Has Two Components: Uncertainty and Exposure