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Interest risks may be influenced by the Fed funds rate. Also interest risks may be influenced by the current situation in the economy and financial market since the growing financial markets and active economic growth is accompanied by low interest rates, while investors are interested in investing their money in business instead of depositing them in banks. In addition, the high spending also decreases interest risks because customers do not deposit substantial funds and spend them fast. On the contrary, the economic recession and high saving trend stimulate the increase of interest because companies cannot be certain that customers will carry on buying their products or services. The growing competition also stimulates the rise of interest risks because companies often sacrifice their current interests and profits for the sake of improving their marketing position in a long-run perspective.
Financial Transactions Risk Type Describe and justify risk type Interest Rate or Interest Income?
A bank finances a $10 million, six-year fixed-rate commercial loan by selling one-year certificate of deposit. Interest rate risk The interest risks depend on the change in interest rates and the bank can either earn or lose money, if interest rate changes consistently in the course of a year, during which the interest rate of one-year certificate of deposit changes. Interest rate
An insurance company invests its policy premiums in a long-term municipal bond portfolio. Country or sovereign risk The return on investments depend on the policy of the local authorities and effectiveness of using the invested fund by the local authorities Interest rate
A French bank sells two-year fixed-rate notes to finance a two-year fixed-rate loan to a British entrepreneur. Foreign exchange rate risk The transaction depends on the foreign exchange risk because France uses euro, whereas Britain uses British pound as currency. The difference and change in exchange rate can affect the outcomes of the transaction. Interest rate
A Japanese bank acquires an Austrian bank to facilitate clearing operations. Foreign exchange rate risk Japanese bank starts its operations in Australia. The transaction involves currency exchange operations and changes in currency rate can affect the outcomes of the transaction. Interest rate and interest income
A bond dealer uses his own equity to buy Mexican debt on the less developed country (LDC) bond market. Country or sovereign risk The dealer should be aware of risks associated with the market of the less developed country Interest income
A securities firm sells a package of mortgage loans as mortgage-backed securities. credit risk The firm can suffer financial losses, if the loans bring considerable profits. Interest rate and interest income
Describe the features of the method you would choose to measure the interest risks identified.

To measure interest risks, it is necessary to take into consideration goals of the transaction, its environment, location and parties involved in the transaction.