The Profits of a Financial Institution with Interest-Rate Sensitive Liabilities

question 53

Multiple Choice

The profits of a financial institution with interest-rate sensitive liabilities and interest rate-insensitive assets are ____ with hedging than without hedging if interest rates decrease.

• A)higher
• B)the same
• C)lower
• D)higher or the same

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Definitions:

Fixed Cost

Costs that remain constant regardless of the amount of goods produced or sold, including expenses like lease payments, employee wages, and insurance fees.

Variable

A characteristic, number, or quantity that can change or vary, taking on different values in a mathematical model, statistical experiment, or real-life situation.

Output

The quantity of goods or services produced by a firm, industry, or economy within a certain period.

AVC

Average Variable Cost, which is the variable cost per unit of output, typically analyzed in the short run.