7-69 When the Assets and Liabilities of an FI Are

question 100

Multiple Choice

7-69 When the assets and liabilities of an FI are not equal in size,efficient hedging of interest rate risk can be achieved by

• A)increasing the duration of assets and increasing the duration of equity.
• B)issuing more equity and reducing the amount of borrowed funds.
• C)not exactly matching the maturities of assets and liabilities.
• D)issuing more equity and investing the funds in higher-yielding assets.
• E)efficient hedging cannot be achieved without the use of derivative securities.

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Definitions:

Electronic Conveniences

Tools and services provided digitally that simplify tasks and transactions, often making daily activities more efficient through technology.

Financial Statement

A proper journal that captures the flow of financial transactions and the economic positioning of an entity, whether a business, an individual, or another type.

Normal Balance

The side of an account (debit or credit) that increases its value; for example, assets and expenses have normal debit balances, while liabilities and revenues have credit balances.

Permanent/Temporary

Describes accounts or records in accounting that either carry their balances over across accounting periods (permanent) or are closed and zeroed out at the end of each period (temporary).