In the context of interest rate risk, banks as financial intermediaries can find
ID: 2439186 • Letter: I
Question
In the context of interest rate risk, banks as financial intermediaries can find themselves in difficult financial situations when
short-term rates are falling.
long-term rates are rising.
short-term rates rise relative to rates of their asset holdings.
deposits increase too rapidly.
long-term rates rise more sharply than short-term rates.
a.short-term rates are falling.
b.long-term rates are rising.
c.short-term rates rise relative to rates of their asset holdings.
d.deposits increase too rapidly.
e.long-term rates rise more sharply than short-term rates.
Explanation / Answer
Correct Answer:
C
Rise of the interest rate in the short term, will make negative impact upon the value of the assets being held by the banks. It makes them worried regarding the erosion of value of the assets and the interest rate differentials. It is termed as interest rate risk.