A Commercial Bank Recognizes That Its Net Income Suffers Whenever

question 18

Multiple Choice

A commercial bank recognizes that its net income suffers whenever interest rates increase.Which of the following strategies would protect the bank against rising interest rates?

• A) Buying inverse floaters.
• B) Entering into an interest rate swap where the bank receives a fixed payment stream,and in return agrees to make payments that float with market interest rates.
• C) Purchase principal only (PO)strips that decline in value whenever interest rates rise.
• D) Enter into a short hedge where the bank agrees to sell interest rate futures.
• E) Sell some of the bank's floating-rate loans and use the proceeds to make fixed-rate loans.

---

Definitions:

Readiness

The state of being fully prepared and willing to engage in a particular task, activity, or learning process.

Cognitive Ability

The capacity to perform higher mental processes of reasoning, remembering, understanding, and problem-solving.

Cognitive Ability

The capacity to perform mental processes such as reasoning, problem-solving, and learning.

Cognitive Ability

Refers to the capacity of individuals to perform various mental processes like learning, thinking, reasoning, problem solving, decision making, remembering, and paying attention.