Economics · Banking Risks
A bank treasurer is evaluating the risks associated with offering two loan types to corporate clients. Statement 1: Offering a loan with a Fixed Interest Rate exposes the bank to interest rate risk because the bank's cost of funds may increase over the loan period. Statement 2: Offering a loan with a Floating Interest Rate exposes the borrower to repayment risk because an increase in the benchmark rate increases the interest burden on the borrower. Which of the following statements about the risk exposure is correct?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Both statements are incorrect as the bank only faces credit risk, and the borrower only faces operational risk.
- 2Both statements are correct, describing the standard risk transfer mechanism.✓
- 3Statement 1 is incorrect, and Statement 2 is correct.
- 4Statement 1 is correct, and Statement 2 is incorrect.
Correct answer
Both statements are correct, describing the standard risk transfer mechanism.
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