If a bank has a lot of long-term loans, it will probably want to reduce interest rate risk by encouraging __________-term deposits, especially of interest rates are expected to __________ in the future.

Question

Quizplus · Accepted Answer

If a bank has many long-term loans, it benefits from matching the duration of its assets (loans) and liabilities (deposits) to reduce interest rate risk. If interest rates are expected to rise, longer-term deposits lock in current lower rates, protecting the bank's margins.

If a Bank Has a Lot of Long-Term Loans, It