Interest Rate Risk
Interest rate risk is the risk that arises from fluctuations in the value of investments due to changes in interest rates. It is the risk that an investor will suffer losses due to changes in the interest rate environment. Interest rate risk is a major concern for investors, as it can have a significant impact on the value of their investments. Interest rate risk is particularly relevant for fixed-income investments, such as bonds, as these investments are sensitive to changes in interest rates.
History of Interest Rate Risk
Interest rate risk has been a concern for investors since the early days of investing. In the early days of investing, investors were primarily concerned with the risk of default, or the risk that a borrower would not be able to repay a loan. As the financial markets evolved, investors began to focus more on the risk of changes in interest rates. This risk was particularly relevant for fixed-income investments, such as bonds, as these investments are sensitive to changes in interest rates.
The concept of interest rate risk has become increasingly important in recent years, as the global economy has become more interconnected and interest rates have become more volatile. As a result, investors have become increasingly aware of the potential risks associated with changes in interest rates.
Table of Comparisons
| Investment Type | Interest Rate Risk |
|---|---|
| Stocks | Low |
| Bonds | High |
| Mutual Funds | Medium |
Summary
Interest rate risk is the risk that arises from fluctuations in the value of investments due to changes in interest rates. It is a major concern for investors, as it can have a significant impact on the value of their investments. Fixed-income investments, such as bonds, are particularly sensitive to changes in interest rates. For more information on interest rate risk, investors can visit websites such as Investopedia, The Balance, and the U.S. Securities and Exchange Commission.
See Also
- Default Risk
- Inflation Risk
- Market Risk
- Credit Risk
- Liquidity Risk
- Volatility Risk
- Currency Risk
- Political Risk
- Systemic Risk
- Reinvestment Risk
