If a ﬁnancial institution has equated the dollar effects of interest rate risk on the assets with the dollar effects on the liabilities, it has engaged in:
A)a long hedge.
B)a short hedge.
C)a protected swap.
D)immunizing interest rate risk.
E)None of the above.

Question

Quizplus · Accepted Answer

Immunizing interest rate risk refers to a strategy where a financial institution manages its assets and liabilities in a way that the dollar effects of interest rate changes on its assets are equal to the dollar effects on its liabilities. This minimizes the institution's exposure to changes in interest rates, which can have adverse effects on its net interest income and profitability.

If a ﬁNancial Institution Has Equated the Dollar Effects of Interest