Question
Suppose a financial institution (FI) issues two-year CDs (with depositors having the option to rollover) to finance a $1B 20-year fixed-rate loans for a power
Suppose a financial institution (FI) issues two-year CDs (with depositors having the option to rollover) to finance a $1B 20-year fixed-rate loans for a power plant. What is the likely outcome?
A. Interest rate risk is tremendous. There is a gross mismatch of duration of the FI’s assets and liabilities.
B. Interest rate increase is good for the FI.
C. Interest rate decrease is bad for the FI.
D. The CDs are the bank’s assets and the loans are the bank’s liabilities.
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The detailed answer for the above question is provided below The answer is A Interest rate risk is t...
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Financial Reporting Financial Statement Analysis And Valuation A Strategic Perspective
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
9th Edition
1337614689, 1337614688, 9781337668262, 978-1337614689
