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:

Genetics

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Procedure in which holes were drilled in the skulls of people displaying abnormal behavior, presumably to allow evil spirits to depart their bodies; performed in the Stone Age.

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A religious or spiritual ritual carried out to expel evil spirits or demons from a person or place believed to be possessed.

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The act of making amends or reparation for wrongdoing or guilt.