Interest rate exposure is generally described as the risk of a reduction in a pro- jected or anticipated measure of net interest income (target measure) resulting from changes in market interest rates. 1 Yet from a practical perspective such a defi nition is somewhat fl awed, as the use of an anticipated (or projected) mea- sure of net interest income is fraught with risks. Any inappropriate assum ption in the projection phase will produce an inaccurate target measure and, conse- quently, result in an inaccurate assessment of interest rate risk. In a more useful way, interest rate exposure could be defi ned as the.
