Assume That the Thrift Variable-Rate Liabilities Are CDs Indexed to Some

question 2

Multiple Choice

Assume that the thrift variable-rate liabilities are CDs indexed to some domestic rate. Which of the following statements describes the hedge characteristics of the above example?

• A)The thrift is exposed to basis risk because the CD rates may not be perfectly correlated with the LIBOR rates.
• B)Only the bank is fully hedged.
• C)The thrift is exposed to basis risk if the credit/default risk premium on the thrift's CDs increases over time.
• D)All of the above.
• E)Answers A and C only.

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Definitions:

Direct Labor Costs

Expenses directly associated with the labor used in producing goods or services, including wages for employees who work on the production line.

Manufacturing Overhead

All indirect costs associated with the production process, excluding direct materials and direct labor.

Work in Process Inventory

Goods that are partially completed in the manufacturing process but are not yet finished products.

Direct Labor

The work performed by individuals directly involved in the manufacturing of goods or provision of services.