The Performance of a Bank That Continually Concentrates in Short-Term

question 58

Multiple Choice

The performance of a bank that continually concentrates in short-term deposits in euros and adjustable-rate dollar loans with equal rate-sensitivity is

• A)unaffected if European interest rates increase and U.S. rates decrease.
• B)unaffected if U.S. interest rates increase and European interest rates decrease.
• C)adversely affected if European interest rates increase and U.S. rates decrease.
• D)adversely affected if U.S. interest rates increase and European rates decrease.
• E)A and B

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Definitions:

Abnormal Returns

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Hyman Minsky

An American economist known for his theories on financial instability and the inherent tendency of financial markets to move towards crisis.

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A situation where the price of an asset dramatically exceeds its intrinsic value, often due to speculative buying.

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