If the yield curve is upward sloping, a bank would not profit from:
A) borrowing short and lending long
B) borrowing long and lending short
C) paying a higher rate on deposits than the market
D) increasing the banks leverage

Question

Quizplus · Accepted Answer

When the yield curve is upward sloping, long-term interest rates are higher than short-term rates. This means that borrowing long and lending short would result in a lower net interest margin for the bank, as the interest earned on the short-term loans would be less than the interest paid on the long-term borrowing. The other choices could still result in profits for the bank.

If the Yield Curve Is Upward Sloping, a Bank Would