Define "interest rate risk".

Interest rate risk refers to the potential for investment value to decline as a result of rising interest rates. This phenomenon is primarily observed in fixed-income securities, such as bonds. When interest rates increase, newly issued bonds typically offer higher yields, making older bonds with lower yields less attractive to investors. Consequently, the market value of these older bonds decreases, and investors face the risk of having to sell them at a loss if they need to liquidate their positions before maturity.

This concept is crucial for investors to understand, as it directly influences portfolio management and investment strategies. When assessing the risk profiles of their investments, particularly those reliant on fixed income, it is essential to evaluate the prevailing interest rate environment and its potential impact on asset valuations.

The other options focus on risks related to inflation, currency fluctuations, and loan costs, which do not align with the definition of interest rate risk. Thus, option A accurately captures the essence of interest rate risk within the context of investment valuation.