24-83 Assume That the Thrift Variable-Rate Liabilities Are CDs Indexed

question 43

Multiple Choice

24-83 Assume that the thrift variable-rate liabilities are CDs indexed to some domestic rate.Which of the following statements describes the hedge characteristics of the above example?

• A)The thrift is exposed to basis risk because the CD rates may not be perfectly correlated with the LIBOR rates.
• B)Only the bank is fully hedged.
• C)The thrift is exposed to basis risk if the credit/default risk premium on the thrift's CDs increases over time.
• D)All of the above.
• E)Answers A and C only.

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