If a Banker Expects Interest Rates to Fall in the Future,her

question 95

Multiple Choice

If a banker expects interest rates to fall in the future,her best strategy for the present is

• A)to increase the duration of the bank's liabilities.
• B)to buy short-term bonds.
• C)to sell long-term certificates of deposit.
• D)to increase the duration of the bank's assets.

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Definitions:

Long-Run Exposure Risks

Risks that a business faces over an extended period that can impact its financial stability, such as exchange rate fluctuations.

Foreign Exchange

The conversion or trading of one currency into another currency.

Triangle Arbitrage

A risk-free profit that arises from discrepancies between three foreign currencies in the foreign exchange market.

Profit

The financial gain realized when the revenue from business activities exceeds the expenses, costs, and taxes involved in sustaining the activity.