An Australian FI That Invests €50 Million in Three-Year Maturity

question 62

Multiple Choice

An Australian FI that invests €50 million in three-year maturity loans and partially funds these loans with €30 million one-year deposits is exposed to the following risks.

• A)A depreciation of the euro against the Australian dollar plus credit risk plus refinancing risk, such as increasing interest rates in the Eurozone.
• B)An appreciation of the euro against the Australian dollar plus credit risk plus refinancing risk, such as increasing interest rates in the Eurozone.
• C)A depreciation of the euro against the Australian dollar plus credit risk plus reinvestment risk, such as decreasing interest rates in the Eurozone.
• D)A depreciation of the euro against the Australian dollar reinvestment risk, such as increasing interest rates in the Eurozone.

Understand the role of prices in markets as signals that coordinate buyers' and sellers' decisions.

Recognize the difference between the law of demand and the concept of cost in production.

Identify factors leading to changes in supply and demand, including government interventions like taxes and subsidies.

Understand market efficiency, including allocative and productive efficiencies, and the conditions under which they are achieved.

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Definitions:

Liver

A vital organ located in the upper right quadrant of the abdomen, involved in detoxifying substances, producing bile, and metabolizing nutrients.

Visceral Peritoneum

Also known as the serosa, the outermost layer of the abdominal organs that secretes serous fluid to keep the organs from sticking to each other.

Serosa

The outermost layer of the alimentary canal; also known as the visceral peritoneum.

Serous Fluid

A clear, watery fluid secreted by serous membranes, helping to reduce friction between the internal organs.