Banking

When a bank transforms your cash into another asset that earns them a profit they assume several different types of risk. The first type of risk that the bank will encounter is interest rate risk, which is associated with changes in market interest rates. In the broadest sense of the term, "banking" is the business of accepting temporary responsibility for safeguarding other people's money and then lending out these funds in order to earn interest for the bank's own account. This being said, a change in interest rates could have a large impact on a bank’s profit because the bank's profits arise mainly from the (positive) spread between its costs of securing and servicing deposits and its revenues from fees and interest on the loans extended. The next type of r...