The key to the interest rate risk faced by thrifts was

Question

Quizplus · Accepted Answer

Thrifts often utilized the strategy of borrowing short-term funds at low-interest rates and investing them in long-term assets at higher rates of return. This created a significant mismatch between the maturities of their assets and liabilities, making them vulnerable to interest rate fluctuations. When interest rates rose, the cost of borrowing increased while the income generated from their assets remained fixed, resulting in a net loss. Hence, the key to the interest rate risk faced by thrifts was the mismatch between the maturities of their assets and liabilities.

The Key to the Interest Rate Risk Faced by Thrifts