Financial institutions manage various types of risks: 1) Credit risk is the risk of loss from borrower defaults and can be mitigated through loan diversification, credit analysis of borrowers, and adjusting interest rates. 2) Liquidity risk is the risk that a financial institution cannot meet demands for withdrawals, loans or claims and can be managed through effective asset-liability management. 3) Interest rate risk exists due to variability in interest rates and can be caused by maturity mismatches between assets and liabilities. Financial institutions use interest rate derivatives to hedge this risk.