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A bank has $400 million in long-term assets and $300 million worth of long-term, fixed-rate liabilities. If the interest rates rise, the market value of
A bank has $400 million in long-term assets and $300 million worth of long-term, fixed-rate liabilities. If the interest rates rise, the market value of both long-term assets and long-term liabilities will decline. What is bank's net exposure? What amount of long-term assets should be hedged against the possibility of higher interest rates? Short hedge or long hedge?
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