The risk associated with declining spreads between assets and liabilities is which of the following?
A)exchange rate risk
B)default risk
C)liquidity risk
D)interest rate risk

Question

Quizplus · Accepted Answer

Declining spreads between assets and liabilities create interest rate risk because it reduces the net interest margin for financial institutions, potentially leading to lower profitability and volatility in earnings. Exchange rate risk, default risk, and liquidity risk are not directly affected by spreads between assets and liabilities.

The Risk Associated with Declining Spreads Between Assets and Liabilities