Bank financing as primary source of exposure
In the previous chapter we discussed the sources of exposure to interest rate risk. Of the four sources of exposure, most firms are exposed to interest rate risk through short- and long-term loans from banks. In this chapter I’ll focus on three types of bank financing: current account overdraft, medium-term loans and long-term loans. Furthermore, I’ll examine three aspects of bank financing that influence interest rate risk: collateral, repayment methods and pricing.
From the point of view of the term of bank financing, a current account overdraft ‘officially’ has the shortest ...
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