When there are pricing differentials between markets as a result of interest rate changes or expectations,this is called _____ interest rate risk.
A) basis
B) direct
C) indirect
D) reinvestment

Question

Quizplus · Accepted Answer

Basis interest rate risk refers to the risk that arises from pricing differentials between markets due to changes in interest rates or expectations. This is because when interest rates change, the prices of financial instruments may also change, leading to differences in pricing between markets. Therefore, A) basis interest rate risk is the correct answer. Direct and indirect interest rate risk refer to changes in the value of financial instruments due to changes in interest rates, while reinvestment risk refers to the risk of earning lower returns on investments due to changes in interest rates.

When There Are Pricing Differentials Between Markets as a Result