13-20 Interest rate risk is part of the loan commitment contingent risk because of the uncertainty of changes in interest rates before the borrower exercises his option to borrow.

Question

Quizplus · Accepted Answer

Interest rate risk refers to the possibility of changes in interest rates affecting the value of a loan commitment. This risk is inherent in loan commitments because the borrower may not exercise the option to borrow for a period of time, during which interest rates may change. Therefore, interest rate risk is indeed part of the loan commitment contingent risk.

13-20 Interest Rate Risk Is Part of the Loan Commitment