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Interest rate risk

Interest rate risk Definition

The risk that a savings association's assets and/or liabilities will decline in market value because of changes in market interest rates. For example, on the asset side, an old loan earning 10 percent will be worth less to the association if interest rates on new loans rise to 12 percent. On the liabilities side, an existing certificate of deposit yielding 10 percent becomes relatively more costly to the association if the interest rate on a comparable new CD drops to 8 percent.





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