During early 2008, the market sentiment and the credit crunch in the United States and worldwide created a lot of pressure on the liquidity of KMTB Finance Company. Even though short-term interest rates dropped a lot, the long-term yield required on its new financial liabilities increased significantly. Simultaneously, the drop in the fair value of KMTBs mortgage-backed securities and adjustable interest loan receivable required it to make a huge impairment loss. These securities had been financed by some low but fixed-rate financial liabilities sourced before 2008.

In order to offset with the impairment loss made in 2008, while KMTB still sustained a huge amount of those low but fixed-rate financial liabilities, it considered devaluing these financial liabilities based on the fact that the increase in long-term yield was significant.

Discuss whether the proposed treatment of KMTB is practicable.