The Following Information Is About Current Spot Rates for Second

question 10

Multiple Choice

The following information is about current spot rates for Second Duration Savings' assets (loans) and liabilities (CDs) . All interest rates are fixed and paid annually. What is the interest rate risk exposure of the optimal transaction in the previous question over the next 2 years?

• A)The risk that interest rates will rise since the FI must purchase a 2-year CD in one year.
• B)The risk that interest rates will rise since the FI must sell a 1-year CD in one year.
• C)The risk that interest rates will fall since the FI must sell a 2-year loan in one year.
• D)The risk that interest rates will fall since the FI must buy a 1-year loan in one year.
• E)There is no interest rate risk exposure.

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Definitions:

Interest

A sense of curiosity or concern about or a desire to be involved with something or someone.

Social Class

A division of society based on social and economic status, often influencing individuals' opportunities, lifestyles, and attitudes.

Everyday Habit

refers to routine behaviors or practices that individuals perform regularly without much thought.

Life Chances

The opportunities that people have in common by virtue of belonging to a particular class.