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:

Owner's Equity

The residual interest in the assets of a business after all liabilities are deducted, essentially the owner's share of the company's net assets.

Revenues

The total amount of money received by the company for goods sold or services provided during a specific time period before any expenses are subtracted.

Closing Entries

Entries recorded at the close of an accounting period to move balances from temporary accounts to permanent ones.

Owner's Equity Account

An account on a company's balance sheet that represents the total amount invested by the owners plus any retained earnings or losses.