A financial institution that is concerned about the possibility that the purchasing power of both the interest income and repaid principal on a loan will decline is concerned about which of the following?
A)Business risk
B)Liquidity risk
C)Tax exposure
D)Credit risk
E)Inflation risk

Question

Quizplus · Accepted Answer

Inflation risk refers to the risk that the purchasing power of both the interest income and repaid principal on a loan will decline due to inflation. This risk is a concern for financial institutions because it can erode the value of their investments and loans over time. Therefore, the financial institution must take measures to mitigate the impact of inflation on their portfolio.

A Financial Institution That Is Concerned About the Possibility That