Question

For most financial institutions, present value uncertainty is the risk that

Answer 1

Interest income will rise by more than interest expense

Answer 2

Explanation:

➡️ Interest rate risk arises due to changes in market interest rates, which have an impact on bank profitability. An interest rate rise puts financial pressure on the client, which may in turn result in default of loan payments. The major factors that lead to increased interest rate risk are the volatility of interest rates and mismatches between the interest reset dates on assets and liabilities.