If depositors move money from their checking accounts to short-term CDs, this would ____ the rate sensitivity of the savings institution's liabilities to interest rate movements.
A)increase
B)have no effect on
C)decrease
D)increase AND decrease are correct, depending on the size of the savings institution

Question

Quizplus · Accepted Answer

Moving money from checking accounts, which typically have lower interest rates and are less sensitive to interest rate changes, to short-term CDs, which have higher interest rates and are more sensitive to interest rate changes, increases the rate sensitivity of the institution's liabilities. This is because CDs will require the institution to pay out more as interest rates rise, compared to checking accounts.

If Depositors Move Money from Their Checking Accounts to Short-Term