If a bank expected interest rates to consistently ____ over time, it will consider allocating most funds to rate-____ assets.

Question

Quizplus · Accepted Answer

If interest rates are expected to consistently decrease over time, a bank will consider allocating most funds to rate-insensitive assets. This is because rate-insensitive assets are less affected by changes in interest rates, therefore, the bank can reduce the impact of declining interest rates on its portfolio. Conversely, if interest rates are expected to consistently increase over time, a bank will consider allocating most funds to rate-sensitive assets.

If a Bank Expected Interest Rates to Consistently ____ Over