If a savings institution's assets have a considerably longer duration than its liabilities, it can reduce its exposure to interest rate risk by
A)reducing its proportion of assets in the short duration categories.
B)increasing its proportion of liabilities in the short duration categories.
C)reducing its proportion of assets in the long duration categories .
D)reducing its proportion of assets in the short duration categories AND increasing its proportion of liabilities in the short duration categories.

Question

Quizplus · Accepted Answer

Reducing its proportion of assets in the long duration categories will help align the durations of assets and liabilities more closely, thereby reducing exposure to interest rate risk.

If a Savings Institution's Assets Have a Considerably Longer Duration