If depositors move money from their checking account to short-term CDs, this would ____ the rate-sensitivity of the savings institution's liabilities to interest rate movements.
A)increase
B)have no effect on
C)decrease
D)A or C, depending on the size of the savings institution

Question

Quizplus · Accepted Answer

Moving money from checking accounts to short-term CDs would decrease the liquidity of the savings institution's liabilities and increase their sensitivity to interest rate movements. As a result, if interest rates rise, depositors may be less likely to withdraw their funds from CDs, meaning that the institution would be more exposed to interest rate risks.

If Depositors Move Money from Their Checking Account to Short-Term