If a financial institution has equated the dollar effects of interest rate risk on the assets with the dollar effects on the liabilities,it has engaged in:

Question

Quizplus · Accepted Answer

When a financial institution has equated the dollar effects of interest rate risk on the assets with the dollar effects on the liabilities, it has immunized interest rate risk. By immunizing, the financial institution has eliminated the potential impact of interest rate changes in the economy, making it easier to predict future cash flows. This is a technique used by many financial institutions to minimize their risk exposure.

If a Financial Institution Has Equated the Dollar Effects of Interest