If a bank has more rate-sensitive assets than rate-sensitive liabilities
A)it reduces interest rate risk by swapping rate-sensitive income for fixed rate income.
B)it reduces interest rate risk by swapping fixed rate income for rate-sensitive income.
C)it increases interest rate risk by swapping rate-sensitive income for fixed rate income.
D)it neutralizes interest rate risk by receiving and paying fixed-rate streams.

Question

Quizplus · Accepted Answer

When a bank has more rate-sensitive assets than liabilities, it is exposed to interest rate risk. By swapping rate-sensitive income for fixed rate income, the bank reduces its exposure to changes in interest rates, thus reducing interest rate risk.

If a Bank Has More Rate-Sensitive Assets Than Rate-Sensitive Liabilities