A Bank Has an Average Duration of Its Liabilities Equal

question 3

Multiple Choice

A bank has an average duration of its liabilities equal to 2 years. The bank's average duration of its assets is 3.5 years. The bank's market value of equity is at risk if ________.

• A) interest rates fall
• B) credit spreads fall
• C) interest rates rise
• D) the price of all fixed-income securities rises

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Definitions:

Soviet Union

A former federal socialist state in Eurasia that existed from 1922 to 1991, made up of 15 republics, and was the largest country in the world.

Competition

The rivalry among sellers trying to achieve such goals as increasing profits, market share, and sales volume.

American Industry

Refers to the manufacturing and economic sectors of the United States which contribute to its Gross Domestic Product (GDP).

Influence Over Price

Influence over price describes the extent to which a producer or a group of producers can determine the selling price of their goods or services in the market.