If a bank increases interest rates on its loans for its customers and then they seek new loans from other banks this interest rate exposure is called _____ interest rate risk.
A) direct
B) indirect
C) basis
D) reinvestment

Question

Quizplus · Accepted Answer

This is because the bank's decision to increase interest rates has indirectly affected the interest rates on loans that its customers can obtain from other banks, leading to indirect interest rate risk. Direct interest rate risk would refer to the bank's own exposure to changes in interest rates on its assets and liabilities. Basis risk would refer to the risk of changes in the relationship between two different interest rates or financial instruments. Reinvestment risk would refer to the risk of reinvesting cash flows at a lower interest rate in the future.

If a Bank Increases Interest Rates on Its Loans for Its