interest rate risk

What Are the Types of Interest Rate Risk?

There are several types of interest rate risk that businesses need to be aware of:
1. Repricing Risk: This occurs when assets and liabilities are revalued at different times, leading to mismatches.
2. Yield Curve Risk: Changes in the shape of the yield curve can affect the valuation of long-term investments and liabilities.
3. Basis Risk: This arises when there is a difference in the interest rate indices used for different financial instruments.
4. Option Risk: This involves the risk associated with embedded options in financial products, such as prepayment options on loans.

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