Function(s) of a banks security portfolio is (are) to:

1. Increase tax exposure.
2. Increase credit risk exposure.
3. Stabilize the banks income.
4. All of the above.

12. When interest rates rise:

1. Longest-term bonds suffer the least risk
2. Longest-term bonds suffer the greatest losses
3. Shortest-term bonds experience the least gains

d. Both (b) and (c)

13. Money market instruments:

1. Do not have ready marketability.
2. Have higher expected rate of return.
3. Have higher expected capital gains potential.
4. Have lower capital gains potential.

14. When a bank expects revenues and profits to rise in a particular year, it will more likely pursue investment portfolio shifting by:

1. Selling bonds whose market value has risen
2. Selling bonds whose market value has declined
3. Purchasing bonds whose market value has risen
4. Purchasing binds whose market value has declined

15. Advantage of a back-end maturity policy is:

1. Maximizing income potential from security investments if market interest rates rise.
2. Reduces investment income fluctuations.
3. Maximizing income potential from security investments if market interest rates fall.