From the Perspective of an FI, Which of the Following

question 27

Multiple Choice

From the perspective of an FI, which of the following is an advantage of a floating-rate loan?

• A)Stable interest payments will be received throughout the loan period.
• B)The pre-specified interest rate remains in force over the loan contract period no matter what happens to market interest rates.
• C)The bank can request repayment of a loan at any time in the contract period.
• D)The default risk is completely eliminated.
• E)The interest rate risk is transferred to the borrower.

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Definitions:

Balance of Payments Surplus

A situation where the total of the payments received from abroad exceeds the total of the payments made to abroad.

FX Reserves

Short for foreign exchange reserves; assets held on reserve by a central bank in foreign currencies, used to back liabilities on their own issued currency as well as to influence monetary policy.

Economic Fortune

The state of prosperity or success, especially as determined by economic variables such as income, employment, and market position.

Exchange-rate System

The method by which a country manages its currency in relation to other currencies and determines its exchange rate.