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The interest rate increase, then the borrowing costs will definitely rise. However the demand for housing declines as interest rate rise. As housing demands falls so does demand for lumber. An increase in interest rate leads to increased financing cost and the same time decreased the revenue too. Risk profile is the tool for identify and measure a firm’s exposure to financial risk. The risk profile is showing the relationship between the changes in the price of good and service or rate and changes in the value of the firm.
Price fluctuations have short run and long run components. Short run changes in prices consequence from not expected events or shocks. For example sudden increase in oil prices, because of political turmoil and increases in lumber prices, because available supplies are low following a hurricane.
Short run price changes can drive a business into financial distress, in the long run the business, when a firm finds itself with sudden cost increase that unable to pass on to its customers immediately also the firm may be unable to meet its financial duties too. Long run price fluctuations can be a permanent changes, these happen in the underlying economics of business. For example, technology come about the improvements in agricultural. Economic exposure is the long term financial arising from permanent changes in prices or other economic fundamentals.