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Suppose that Bank C is offering the following deposit and mortgage rates to their customers: Maturity Deposit rate Mortgage rate 1 year 4% 6% 5

Suppose that Bank C is offering the following deposit and mortgage rates to their customers:

Maturity

Deposit rate

Mortgage rate

1 year

4%

6%

5 years

2%

5%

Assess the banks interest rate risk when interest rates increase by 3% for the first two years and discuss a strategy to eliminate the risk if any.

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