Assume That a Bank Obtains Most of Its Funds from Large

question 54

Multiple Choice

Assume that a bank obtains most of its funds from large CDs with a five-year maturity. Its assets are in the form of loans with rates that adjust every six months. The bank would be ____ affected if interest rates decline. To partially hedge its position, it could ____ interest rate futures contracts.

• A)adversely; purchase
• B)favorably; sell
• C)favorably; purchase
• D)adversely; sell

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Definitions:

Direct Method

A way to prepare a cash flow statement where actual cash flows from operating activities are listed, rather than being indirectly calculated.