Financial Institutions Primarily Use Interest Rate Swaps in a Way

question 47

Multiple Choice

Financial institutions primarily use interest rate swaps in a way that will ____ exposure to interest rate risk and ____ potential returns.

• A)increase; increase
• B)increase; reduce
• C)reduce; increase
• D)reduce; reduce

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Definitions:

Marginal Revenue

The increase in revenue that results from the sale of one additional unit of product.

Profit-maximizing Output

The level of production at which a company achieves the highest possible profit.

Marginal Cost

The rise in overall expenses resulting from the production of an additional unit.

Marginal Revenue

The additional income from selling one more unit of a good; it is the change in total revenue from an additional unit sold.