Bruce the Bank Manager can reduce interest rate risk by ________ the duration of the bank's assets to increase their rate sensitivity or,alternatively,________ the duration of the bank's liabilities.
A)shortening;lengthening
B)shortening;shortening
C)lengthening;lengthening
D)lengthening;shortening

Question

Quizplus · Accepted Answer

Bruce the Bank Manager can reduce interest rate risk by shortening the duration of the bank's assets to increase their rate sensitivity or, alternatively, lengthening the duration of the bank's liabilities. Shortening the duration of assets will reduce the bank's exposure to interest rate risk, while lengthening the duration of liabilities will allow the bank to earn more interest income if interest rates rise. Therefore, the best choice is A - shortening the duration of assets or lengthening the duration of liabilities.

Bruce the Bank Manager Can Reduce Interest Rate Risk by ________