Which of the Following Statements Does Not Explain Why Banks

question 593

Multiple Choice

Which of the following statements does not explain why banks accept some amount of interest rate risk?

• A) In their function as intermediaries, banks must necessarily accept some degree of interest rate risk.
• B) Banks incur interest rate risk to increase income
• C) Banks prefer c red it risk to market risk.
• D) If banks failed to take on interest rate risk they would not be able to meet the needs of their deposit and loan customers.

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Definitions:

Mental Accounting

A concept in behavioral economics where individuals categorize, monitor, and evaluate their financial activities distinctly, affecting their economic decisions and behavior.

Updating Beliefs

The process of revising one's beliefs or opinions in light of new evidence or information, fundamental in Bayesian inference and decision-making processes.

Conservatism

A principle in accounting that recommends erring on the side of caution and underestimating rather than overestimating profits and values.

New Evidence

Recent information or data that offering fresh insights, usually changing or confirming existing understandings.