The Use of Floating-Rate Debt Will Not Entirely Eliminate a Bank's

question 35

Multiple Choice

The use of floating-rate debt will not entirely eliminate a bank's exposure to interest rate risk because

• A)the value of the bank's assets will still be affected more than the value of the bank's liabilities by changes in interest rates.
• B)the value of the bank's liabilities will still be affected more than the value of the bank's assets by changes in interest rates.
• C)a rise in interest rates might increase the default risk of borrowers.
• D)Federal Reserve regulations limit the amount of floating-rate debt a bank may have.

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Definitions:

Internal Auditors

Professionals who conduct audits within an organization to assess the effectiveness, efficiency, and compliance of operational processes and controls.

Accounting Department

The division within a business that is responsible for managing the financial records, payroll, receivable and payable accounts, and financial reporting.

Passive Continental Margin

A region where the transition between oceanic and continental lithosphere that is not an active plate boundary occurs.

Oceanic Ridge

Underwater mountain systems formed by plate tectonics, consisting of continuous volcanic mountain chains in the ocean.