Rate Risk

Posted in Finance, Accounting and Economics Terms, Total Reads: 736
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Definition: Rate Risk

The risk associated with an investment as a result of variability of the interest rate associated with the investment is known as rate risk. Both the lender and the borrower face the rate risk if the interest rate associated with an investment is the floating interest rate.

When the interest rate is rising the borrower is facing the rate risk as their liabilities towards the lender are increased. On the other hand if the interest rate is falling then the lender is facing the rate risk as the lenders income from the interest is reduced.

 

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