If Finance Companies Have Liabilities That Are More Rate Sensitive

question 7

Multiple Choice

If finance companies have liabilities that are more rate sensitive than their assets and want to reduce interest rate risk, they could

• A)shorten their average asset life.
• B)lengthen their average asset life.
• C)shorten the maturity of debt that they issue.
• D)make greater use of fixed-rate loans.

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Definitions:

Tax Deductible

Expenses that are subtracted from gross income to reduce taxable income, leading to a decrease in the amount of taxes owed.

Operating Expenses

Costs associated with the day-to-day operations of a business, excluding the cost of goods sold.

Tax Rate

The percentage at which an individual or corporation is taxed, varying according to the amount of income or profit made.

Unrealized Gain

Represents the increase in value of an investment or asset that has not yet been sold for cash.