If a bank's tax rate increases, it can reduce taxes by:
A) swapping municipals for corporate bonds
B) swapping corporate for municipal bonds
C) swapping long-term for short-term securities
D) swapping short-term for long-term securities

Question

Quizplus · Accepted Answer

Municipal bonds are often exempt from federal taxes and sometimes from state and local taxes as well. By swapping corporate bonds (which are taxable) for municipal bonds, a bank can reduce its tax liability. Choices A, C, and D do not directly affect a bank's tax obligations in the same manner.

If a Bank's Tax Rate Increases, It Can Reduce Taxes