If a bank attempts to reduce exposure to interest rate risk by replacing long-term marketable securities with more floating-rate commercial loans, it is likely that the bank's

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Replacing long-term securities with floating-rate loans can increase default risk because floating-rate loans may be riskier if borrowers cannot handle rate increases. It can also increase liquidity risk as loans are less liquid than marketable securities.

If a Bank Attempts to Reduce Exposure to Interest Rate