Banks Experience Interest Rate Risk

question 42

Multiple Choice

Banks experience interest rate risk

• A)if adverse selection problems are particularly severe.
• B)if moral hazard problems are particularly severe.
• C)on any investment that has high information costs.
• D)if changes in interest rates cause bank profits to fluctuate.

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Definitions:

Preferred Stock

A type of stock that gives its holders precedence over common stockholders in terms of dividends and claims on assets, but typically does not have voting rights.

Dividends

The distribution of a portion of a company's earnings to its shareholders as determined by the company's board of directors.

Shareholder

An individual or entity that owns shares in a corporation, thereby holding a portion of the company's equity and potentially influencing its decisions.