If a bank that relies heavily on short-term deposits for its funds replaces its investment in long-term Treasury securities with more floating-rate commercial loans, it is likely that the bank's exposure to
A)credit risk would decrease.
B)credit risk would increase.
C)interest rate risk would increase.
D)None of the above.

Question

Quizplus · Accepted Answer

Replacing long-term Treasury securities with floating-rate commercial loans increases a bank's exposure to credit risk because commercial loans generally carry a higher risk of default than government securities.

If a Bank That Relies Heavily on Short-Term Deposits for Its