Floating-rate loans cannot completely eliminate interest rate risk; if the cost of funds is changing more frequently than the rate on assets, the bank's net interest margin is still affected by interest rate fluctuations.

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Floating-rate loans adjust their interest rates periodically based on a reference interest rate index, which can mitigate but not eliminate interest rate risk. If the bank's cost of funds changes more frequently or in a different magnitude than the adjustments to the loan rates, the net interest margin (the difference between the interest income generated by banks and the amount of interest paid out to their lenders) can still be affected by fluctuations in interest rates.

Floating-Rate Loans Cannot Completely Eliminate Interest Rate Risk; If the Cost