Interest rate risk

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The risk associated with a change in interest rates.

This may take several forms in the treasury context.

For example, and depending on the direction of the change:

  • Increasing interest cost
  • Falling interest income
  • Changing market value of debt, or of pension liabilities
  • Differences in competitiveness
  • The changing nature of a market when interest rates change
  • Secondary effects, especially potentially adverse effects, resulting from any of the primary effects above. For example, potential breaches of interest cover covenants.

Sometimes written 'interest-rate risk'.

Not to be confused with Internal Rate of Return, which is also abbreviated to IRR.

See also

Other resource

The devil is in the detail, The Treasurer, 2015