Which type of note minimizes the bank's risk associated with interest rate changes?

An adjustable rate note minimizes the bank's risk associated with interest rate changes because it allows the interest rate to fluctuate over the life of the loan based on current market rates or an index. Unlike a fixed-rate note, where the interest rate remains constant regardless of changes in the market, an adjustable rate note adjusts periodically, aligning the bank’s interest income with prevailing market conditions.

This means that if interest rates rise, the bank can increase the interest rate on the loan, thereby maintaining its profit margins. Conversely, with a fixed-rate loan, if interest rates rise significantly, the bank must continue to receive fixed payments that are lower than the current market rates, potentially leading to reduced profitability and increased risk.

Additionally, while secured and unsecured notes relate more to the backing of the loan with collateral and the risk of default, they do not directly address the concern of interest rate fluctuations as effectively as an adjustable rate note does. Therefore, the adjustable rate note is the choice that specifically minimizes the bank's risk related to changes in interest rates.