If a financial institution has equated the dollar effects of interest rate risk on the assets with the dollar effects on the liabilities, it has engaged in:
A) a long hedge.
B) a short hedge.
C) a protected swap.
D) immunizing interest rate risk.

Question

Quizplus · Accepted Answer

Immunizing interest rate risk involves adjusting the portfolio of assets and liabilities so that the impact of interest rate changes is neutralized. By equating the dollar effects of interest rate risk on assets with those on liabilities, the institution ensures that the net impact of interest rate fluctuations on its financial position is minimized, effectively immunizing itself against interest rate risk.

If a Financial Institution Has Equated the Dollar Effects of Interest