____ risk prevents an interest rate swap from completely eliminating a financial institution's exposure to interest rate risk.

Question

Quizplus · Accepted Answer

Basis risk refers to the risk that the underlying reference rates for the interest rate swap may not move in the same direction, causing the swap to not completely eliminate the institution's exposure to interest rate risk. Credit risk and sovereign risk are not related to the effectiveness of an interest rate swap in managing interest rate risk.

____ Risk Prevents an Interest Rate Swap from Completely Eliminating