When the Assets and Liabilities of an FI Are Not

question 74

Multiple Choice

When the assets and liabilities of an FI are not equal in size, efficient hedging of interest rate risk can be achieved by

• A)increasing the duration of assets and increasing the duration of equity.
• B)issuing more equity and reducing the amount of borrowed funds.
• C)not exactly matching the maturities of assets and liabilities.
• D)issuing more equity and investing the funds in higher-yielding assets.
• E)efficient hedging cannot be achieved without the use of derivative securities.

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Definitions:

Evaluating Mutual Funds

The process of assessing the performance, management, and investment strategies of mutual funds to determine their suitability for an investor.

Rank Portfolios

The process of arranging portfolios in order according to a certain criterion, such as return or risk.

Nearly Identical

Refers to items or entities that are almost the same in appearance, characteristics, or quality, with very minor differences.

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