Final answer:
The term for the risk that increased market interest rates could reduce the value of an investment bank's holdings in long-term securities is 'interest-rate risk'. A rise in the supply of money in the markets can lead to lowered interest rates.
Step-by-step explanation:
The risk that increased market interest rates will cause a decline in the value of an investment bank's holdings of long-term securities is known as interest-rate risk. This risk is a major concern for financial institutions because it can affect the profitability and stability of their operations. When there is an asset-liability time mismatch, where the customer deposits are short-term liabilities and the loans and bonds are long-term assets, a rise in interest rates can create significant challenges. A bank might have to pay more in interest to depositors than it receives from the borrowers of past loans, which can affect the bank’s financial health.
Concerning the supply and demand dynamics that lead to a decline in interest rates, a rise in the supply of money in the financial markets, while demand remains the same, can lead to a decrease in interest rates.