If FIs Borrow Short-Term from Depositors and Purchase Long-Term Bonds

question 117

Multiple Choice

If FIs borrow short-term from depositors and purchase long-term bonds, what risk are they exposed to?

• A)liquidity risk
• B)credit risk
• C)interest rate risk
• D)default risk

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Definitions:

Capital Market Instrument

Financial securities used to raise capital in public and private markets, including stocks and bonds.

Treasury Bond

A Treasury Bond is a fixed-interest government debt security with a maturity of more than ten years.

Common Stock

Equity ownership in a corporation, with voting rights and a share in dividends.

Corporate Bond

A debt security issued by a corporation and sold to investors to raise financing for capital-intensive projects or operational costs.