Assume a U

question 15

Multiple Choice

Assume a U.S. savings institution funds its fixed-rate mortgages by attracting short-term deposits. If it engages in an interest rate swap, but the index on the swap does not move in perfecttandem with its cost of deposits, this reflects

• A) sovereign risk.
• B) basis risk.
• C) credit risk.
• D) none of the above

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Definitions:

Repairs

Expenditures to restore or maintain an asset in its normal operating condition without significantly improving its life or value.

Machine

An equipment or apparatus designed to perform a specific task, often powered by electricity or mechanical energy.

Land Improvement

Enhancements made to a piece of land to increase its value, such as landscaping, paving, and installing utilities.

Shrubbery

Plants, bushes, and small trees used for landscaping and decoration.