Asked by Haley Althaus on Jul 13, 2024
Verified
If the maturity of a bank's assets is much longer than the maturity of its liabilities and it wants to limit its interest rate risk, the bank may ________.
A) prefer to invest in long-term bonds in its asset portfolio
B) prefer to invest in equities in its asset portfolio
C) prefer to invest in variable-rate assets
D) decide to increase its fixed-rate mortgage holdings
Maturity
The final payment date of a loan or financial instrument, at which point the principal (and all remaining interest) is due to be paid.
Interest Rate Risk
The risk that changes in interest rates will adversely affect the value of an investment, particularly relevant for fixed-income securities.
Variable-Rate Assets
Assets that earn interest at rates which adjust over time based on prevailing market conditions.
- Determine approaches to reduce interest rate risk within banks.
Verified Answer
Learning Objectives
- Determine approaches to reduce interest rate risk within banks.
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