If a bank has assets and liabilities in dollars and euros, its exposure to interest rate risk can best be minimized if the
A) currency mix of assets is similar to that of liabilities.
B) overall rate sensitivity of assets and liabilities is similar.
C) rate sensitivity of assets and liabilities is matched for each currency.
D) A and B

Question

Quizplus · Accepted Answer

Matching the rate sensitivity of assets and liabilities for each currency is the best way to minimize interest rate risk in a bank that operates with assets and liabilities denominated in multiple currencies. This means that the bank will be able to hedge against fluctuations in interest rates for each currency and minimize potential losses. Simply having a similar currency mix of assets and liabilities or overall rate sensitivity may not address the specific risks associated with each currency.

If a Bank Has Assets and Liabilities in Dollars and Euros