If Second Bank has more rate-sensitive liabilities then rate-sensitive assets, it can reduce interest rate risk with a swap which requires Second Bank 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 Bank can hedge against the risk of rising interest rates, which would increase the cost of its rate-sensitive liabilities.

If Second Bank Has More Rate-Sensitive Liabilities Then Rate-Sensitive Assets