The Following Information Is About Current Spot Rates for Second

question 33

Multiple Choice

The following information is about current spot rates for Second Duration Savings' assets (loans) and liabilities (CDs) . All interest rates are fixed and paid annually $$\begin{array} { | c | c | } \hline \text { Assets } & \text { Liabilities } \\\hline \text { 1-year loan rate: } 7.50 \text { percent } & \text { 1-year CD rate: } 6.50 \text { percent } \\\hline \text { 2-year loan rate: } 8.15 \text { percent } & \text { 2-year CD rate: } 6.65 \text { percent } \\\hline\end{array}$$
-What is the interest rate risk exposure of the optimal transaction in the previous question over the next 2 years?

• A)The risk that interest rates will rise since the FI must purchase a 2-year CD in one year.
• B)The risk that interest rates will rise since the FI must sell a 1-year CD in one year.
• C)The risk that interest rates will fall since the FI must sell a 2-year loan in one year.
• D)The risk that interest rates will fall since the FI must buy a 1-year loan in one year.
• E)There is no interest rate risk exposure.

Understand various biases (confirmation, availability, representativeness, hindsight) in decision-making and problem-solving.

Acknowledge the importance of creativity in solving problems and generating multiple solutions.

Recognize the importance of critical thinking attributes such as open-mindedness and mindfulness.

Understand the impact of biases and heuristics on decision-making.

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Definitions:

Customer

An individual or entity that purchases goods or services from a business.

Supply Chain

An arrangement involving various companies, personnel, operations, knowledge, and materials dedicated to transporting a product or service from its origin to the consumer.

Shipper

This is an individual or company that sends or transports goods from one place to another, often involved in logistics and supply chain operations.

Receiver

A person or entity legally appointed to manage the financial affairs of a company or individual in cases such as bankruptcy.