An ADI that has borrowed on a fixed-rate basis and lent on a floating-rate basis is exposed to interest rate risk.

Question

Quizplus · Accepted Answer

If an ADI has borrowed on a fixed rate and lent on a floating rate, they are exposed to interest rate risk because if interest rates increase, their borrowing costs will increase while their lending income stays the same. This can squeeze their profit margins and potentially lead to losses.

An ADI That Has Borrowed on a Fixed-Rate Basis and Lent