Which of the Following Would Be an Example of Interest

question 12

Multiple Choice

Which of the following would be an example of interest rate risk?

• A)An increase in interest rates such that the return on an FI's assets increases relative to the costs of its liabilities.
• B)An increase in interest rates so that the costs of an FI's liabilities increase relative to the return on its assets.
• C)A decrease in interest rates such that the return on an FI's assets increases relative to the costs of its liabilities.
• D)A change in interest rates such that the return on an FI's assets exceeds the costs of its liabilities.

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Definitions:

Exchange Rate

How one currency's value is represented using another currency's value.

Indian Rupees

The official currency of India, abbreviated as INR, used as a medium of exchange within the country.

Absolute Purchasing Power Parity

A theory that suggests that in the absence of transaction costs and other barriers, the purchasing power of a currency is the same domestically as it is abroad.

Forward Exchange Rates

The exchange rates at which two parties agree to exchange currencies at a future date.