The principle of matched maturities in finance refers to:

Question

Quizplus · Accepted Answer

The principle of matched maturities suggests that long-term assets should be financed with long-term sources of funds and short-term assets with short-term financing. This approach ensures that the cash flows from the assets and the financing match, reducing the risk of liquidity problems and ensuring that interest rate risk is appropriately managed. Option A is incorrect as too much reliance on long-term funding can lead to interest rate risk, while Option C is incorrect as it is not always beneficial to use short-term financing, which can expose the firm to rollover risk. Option D is also incorrect as it is not related to matched maturities.

The Principle of Matched Maturities in Finance Refers To