If a Bank Attempts to Reduce Exposure to Interest Rate

question 23

Multiple Choice

If a bank attempts to reduce exposure to interest rate risk by replacing long-term marketable securities with more floating-rate commercial loans, it is likely that the bank's

• A)default risk would decrease.
• B)default risk would increase.
• C)liquidity risk would increase.
• D)liquidity risk would decrease.
• E)B and C

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Definitions:

Average Total Cost

The total cost of production divided by the number of units produced, representing the cost per unit of output.

Economies

Systems of production, distribution, and consumption of goods and services among individuals, businesses, and governments within a region or country.

Large Firms

Companies or enterprises that have a large scale of operations, significant market power, and a vast distribution of employees and resources.

Barrier To Entry

Factors that prevent or hinder companies from entering a specific market or industry.