If Second National Bank has more rate-sensitive liabilities than rate-sensitive assets,it can reduce interest-rate risk with a swap which requires Second National to
A) pay a fixed rate while receiving a floating rate.
B) receive a fixed rate while paying a floating rate.
C) both receive and pay a fixed rate.
D) both receive and pay a floating rate.

Question

Quizplus · Accepted Answer

By paying a fixed rate and receiving a floating rate, Second National Bank can hedge against the risk of rising interest rates, which would increase the cost of its rate-sensitive liabilities.

If Second National Bank Has More Rate-Sensitive Liabilities Than Rate-Sensitive