A bank with a two-year horizon has issued a one-year certificate of deposit for $50 million at an interest rate of 2 percent. With the proceeds, the bank has purchased a two-year Treasury note that pays 4 percent interest. What risk does the bank face in entering into these transactions?

The bank faces the risk that the short-term interest rate will (Rise/Fall) before the second year, (Decreasing/Increasing) the amount of interest the bank has to pay on the CD, but leaving the interest income that the bank receives from the Treasury note unchanged.

With an interest rate of 2 percent for the CD and 4 percent for the Treasury note, the bank