A savings institution's cash flows are ____ related to interest rate movements.
A)positively related to
B)negatively related to
C)unrelated to
D)none of the above

Question

Quizplus · Accepted Answer

Savings institutions usually obtain funds from depositors and use the funds to make loans or purchase securities. Since these institutions profit from the spread between the interest earned on loans and securities and the interest paid to depositors, their cash flows are negatively related to interest rate movements. This is because when interest rates rise, the cost of deposits increases, reducing their net interest income, and vice versa.

A Savings Institution's Cash Flows Are ____ Related to Interest