If a banker expects interest rates to fall in the future,her best strategy for the present is
A)to increase the duration of the bank's liabilities.
B)to buy short-term bonds.
C)to sell long-term certificates of deposit.
D)to increase the duration of the bank's assets.

Question

Quizplus · Accepted Answer

If a banker expects interest rates to fall in the future, the best strategy for the present is to increase the duration of the bank's assets. This is because, when interest rates fall, the value of long-term assets increases more than short-term assets. Therefore, increasing the duration of assets allows the bank to generate more profits from interest income. Additionally, it is important to note that selling long-term certificates of deposit in this situation would not be a wise strategy as it would lock in current interest rates and result in a loss of potential profits from future rate decreases.

If a Banker Expects Interest Rates to Fall in the Future,her