Question
An FI has a 10-year maturity asset at a floating rate with annual review and renewal. The asset is funded with a 10-year maturity liability
An FI has a 10-year maturity asset at a floating rate with annual review and renewal. The asset is funded with a 10-year maturity liability at a fixed rate of 10% per annum. What kind of risk does this FI is exposed to?
Select one:
a. There is no interest rate risk as both asset and liability has identical maturity.
b. It is exposed to decreasing interest rate and thus reinvestment risk.
c. It is exposed to increasing interest rate and thus reinvestment risk.
d. It is exposed to decreasing interest rate and thus refinancing risk.
e. It is exposed to increasing interest rate and thus refinancing risk.
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