Question

When a bank makes a loan commitment at a fixed interest rate, which of the following...

When a bank makes a loan commitment at a fixed interest rate, which of the following risks is it NOT exposed to:
Group of answer choicesinterest rate risk.
draw-down risk.
credit risk.
funding risk.
basis risk.

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Answer #1

The correct answer is Interest rate risk

The Company has to make regular payments to the bond holders as they are the debt holders and in return of the capital given to the company the expect a particular rate of return which is based on the interest rate and the fixed interest rate reduces the volatility or the fluctuations in the interest rate because no matter what the existing interest rate in the market the company will pay the fixed interest rate risk.

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