Bank of the Atlantic has liabilities of $4 million with an average maturity of two years paying interest rates of 4.0 percent annually.It has assets of $5 million with an average maturity of 5 years earning interest rates of 6.0 percent annually.To what risk is the bank exposed?

Question

Quizplus · Accepted Answer

Bank of the Atlantic is exposed to both refinancing risk, as it may have difficulty refinancing its liabilities when they mature in two years and interest rates may have changed, and interest rate risk, as its assets have a longer maturity than its liabilities and may be affected by changes in interest rates. Therefore, the correct answer is E.

Bank of the Atlantic Has Liabilities of $4 Million with an Average