Which of the Following Observations Concerning Floating-Rate Loans Is NOT

question 56

Multiple Choice

Which of the following observations concerning floating-rate loans is NOT true?

• A)They have less credit risk than fixed-rate loans.
• B)They better enable FIs to hedge the cost of rising interest rates on liabilities.
• C)They pass the risk of interest rate changes onto borrowers.
• D)In rising interest rate environments, borrowers may find themselves unable to pay the interest on their floating-rate loans.
• E)The loan rate can be periodically adjusted according to a formula.

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Definitions:

Direct Materials Costs

The cost of raw materials that can be directly traced to the production of a specific product.

Direct Labor Costs

Expenses associated with the wages of employees who are directly involved in the production of goods or services.

Manufacturing Overhead

All indirect costs associated with the manufacturing process, including but not limited to utilities, depreciation, and salaries of supervisory staff.

Depreciation

The allocation of the cost of a tangible asset over its useful life, reflecting the loss in value over time.