Many of the Various Risks, Such as Interest Rate Risk

question 58

True/False

Many of the various risks, such as interest rate risk, market risk, credit risk and off-balance-sheet risk, faced by an FI often are interrelated with each other.

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Definitions:

Nominal Rate

Refers to the interest rate before adjustments for inflation or other factors.

Effective Rate

The actual interest rate that borrowers pay or investors receive on a financial product, once all the compounding periods are factored in, often higher than the nominal rate.

Compounding Interval

The frequency at which interest is applied to the principal sum of a loan or deposit, affecting the total interest earned or paid.

Compounded Nominal Rate

The rate of interest quoted for a period, usually a year, without taking into account the effect of compounding within that period.