A bank has longer duration assets than liabilities and is considering using an interest rate swap to reduce its interest rate risk. Describe how a change in interest rates would impact the bank's equity. Should the bank pay a variable rate of interest and receive a fixed interest rate in the swap or vice versa? Explain why.

Question

Quizplus · Accepted Answer

The Answer of A bank has longer duration assets than liabilities and is considering using an interest rate swap to reduce its interest rate risk. Describe how a change in interest rates would impact the bank's equity. Should the bank pay a variable rate of interest and receive a fixed interest rate in the swap or vice versa? Explain why.

A Bank Has Longer Duration Assets Than Liabilities and Is