When the Assets and Liabilities of an FI Are Not

question 74

Multiple Choice

When the assets and liabilities of an FI are not equal in size, efficient hedging of interest rate risk can be achieved by

• A)increasing the duration of assets and increasing the duration of equity.
• B)issuing more equity and reducing the amount of borrowed funds.
• C)not exactly matching the maturities of assets and liabilities.
• D)issuing more equity and investing the funds in higher-yielding assets.
• E)efficient hedging cannot be achieved without the use of derivative securities.

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Definitions:

Glands

Organs in the body that secrete hormones or other substances directly into the blood or onto a surface within or outside of the body.

Adrenal Glands

Small glands located on top of each kidney that produce a variety of hormones including adrenaline and cortisol, which help regulate metabolism, immune system, blood pressure, response to stress, and other essential functions.

Epinephrine

A neurotransmitter and hormone referred to as adrenaline, which plays a crucial role in the body's response to stress or danger.

Bloodstream

The flowing body fluid that circulates through the heart, arteries, capillaries, and veins, carrying oxygen and nutrients to and waste materials away from all body tissues.