A U.S.bank has fixed-rate assets in U.S.dollars and variable-rate liabilities in Euros.This bank is exposed to
A)interest rate increases and an appreciation of the dollar.
B)interest rate declines and an appreciation of the dollar.
C)interest rate increases and a depreciation of the dollar.
D)interest rate declines and a depreciation of the dollar.

Question

Quizplus · Accepted Answer

If interest rates increase, the assets of the bank will maintain their fixed rate, but the liabilities will adjust, resulting in reduced net income. If the dollar depreciates, the value of the assets will decrease, while the value of the liabilities will remain constant, leading to reduced equity.

A USBank Has Fixed-Rate Assets in U