Interest rate risk is part of the loan commitment contingent risk because of the uncertainty of changes in interest rates before the borrower exercises his option to borrow.

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Interest rate risk is the risk that changes in interest rates may negatively impact the value of an investment or loan. Loan commitment contingent risk refers to the risk that the borrower may not ultimately exercise their option to borrow, leaving the lender with a commitment they may no longer want. Interest rate risk is a component of this overall risk because changes in interest rates can impact the attractiveness of the loan to the borrower and thus their likelihood of borrowing.

Interest Rate Risk Is Part of the Loan Commitment Contingent