Carolina National Bank knows that the interest rate on its loans change faster and by a larger amount than the interest rate on its deposits.What type of risk is this an example of?
A)Default risk
B)Inflation risk
C)Liquidity risk
D)Call risk
E)Basis risk

Question

Quizplus · Accepted Answer

This is an example of basis risk, which occurs when the interest rates on different financial instruments or assets move differently. In this case, the difference in how quickly and by how much the interest rates on loans and deposits change represents basis risk for Carolina National Bank.

Carolina National Bank Knows That the Interest Rate on Its