A fiNancial Institution Can Hedge Its Interest Rate Risk By

question 28

Multiple Choice

A financial institution can hedge its interest rate risk by:

• A)matching the duration of its assets to the duration of its liabilities.
• B)setting the duration of its assets equal to half that of the duration of its liabilities.
• C)match the duration of its assets weighted by the market value of its assets with the
• Duration of its liabilities weighted by the market value of its liabilities.
• D)setting the duration of its assets weighted by the market value of its assets to one half that
• Of the duration of the liabilities weighted by the market value of the liabilities.
• E)None of the above.

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Definitions:

Decision Processes

The methods, steps, or procedures involved in making choices or solving problems within an organizational or individual context.

Rationality

The quality or state of being reasonable, based on facts or reason rather than emotions or feelings.

Normative Decision Model

A leadership model suggesting the best course of action is dependent on certain norms, situations, or circumstances.

Participative Leadership

A leadership style where leaders involve team members in the decision-making process, enhancing engagement and commitment.