What is ‘Rate Level Risk’
A type of interest rate risk which asserts that the characteristics of interest rate fluctuation are variable (as opposed to constant) over a period of time. Although interest rates are expected to fluctuate over the period of an investment, the probability of an interest rate change is not always constant, nor is the magnitude of the volatility of interest rate changes.
Explaining ‘Rate Level Risk’
Generally speaking, it is impossible to predict with certainty the characteristics of a changing variable such as interests rates into the future. While it is possible to make reasonably accurate predictions, some amount of uncertainty still exits. This uncertainty represents a tangible risk, which must be incorporated into the price of an investment vehicle.
Further Reading
- Exchange rate risk and Philippine stock returns: before and after the Asian financial crisis – www.tandfonline.com [PDF]
- Fair value of liabilities: the financial economics perspective – www.tandfonline.com [PDF]
- Exchange-rate uncertainty and workers' remittances – www.tandfonline.com [PDF]
- A habit‐based explanation of the exchange rate risk premium – onlinelibrary.wiley.com [PDF]
- The effects of real exchange rate risk on international trade – www.sciencedirect.com [PDF]
- Can hedging tell the full story? Reconciling differences in United States aggregate-and industry-level exchange rate risk premium – www.sciencedirect.com [PDF]
- Growth and risk at the industry level: The real effects of financial liberalization – www.sciencedirect.com [PDF]
- The pricing of exchange rate risk in the stock market – www.jstor.org [PDF]
