A Bank Has Liabilities of $4 Million with an Average

question 8

Multiple Choice

A bank has liabilities of $4 million with an average maturity of two years paying interest rates of 4 per cent annually. It has assets of $5 million with an average maturity of 5 years earning interest rates of 6 per cent annually. To what risk is the bank exposed?

• A) reinvestment risk
• B) refinancing risk
• C) interest rate risk
• D) refinancing risk and interest rate risk

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Definitions:

Stable Conformation

Refers to the most energetically favorable spatial arrangement of atoms in a molecule, minimizing strain and repulsion.

Isopropylcyclohexane

An organic compound featuring a cyclohexane ring substituted with an isopropyl group, used in various chemical applications.

Chair Conformation

A term used to describe the most stable, staggered conformation of a cyclohexane ring, resembling a chair, which minimizes steric strain.

Axial

Describes atoms or groups of atoms in a molecular structure that are oriented parallel to an axis of symmetry, often contrasted with equatorial positioning.