Sustainability Accounting Standards Board (SASB) Level 1 Practice Test

Changes in the shape of the yield curve occur when short-, medium-, and long-term rates move differently relative to each other, altering the curve’s slope and curvature. This affects the value of assets and liabilities with different maturities in ways that aren’t captured by a simple overall level shift. Yield curve risk specifically captures this sensitivity to non-parallel movements in rates, making it the best fit for changes in curve shape. Credit risk is about the possibility of default by a borrower, and liquidity risk concerns how easily assets can be bought or sold without significantly affecting price. Interest rate risk is broader and includes price changes from rate moves in general, but the distinctive concern about how the curve’s shape changes is what defines yield curve risk.