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:

Power Costs

The expenses incurred by a company for the electricity or energy used in its operations.

Sales Price

The amount of money for which a product or service is sold to the customer.

Contribution Margin

The amount by which sales revenue exceeds variable costs, contributing to covering fixed costs and profit generation.

Fixed Costs

Expenses that do not change with the level of production or sales activities within a short time frame, such as rent, salaries, and insurance.