Savings institutions that reduce their amount of ____ will best reduce their exposure to interest rate risk.
A)fixed-rate mortgages
B)consumer loans
C)commercial loans
D)short-term securities

Question

Quizplus · Accepted Answer

Fixed-rate mortgages have a longer maturity, which means they are more sensitive to changes in interest rates. If interest rates increase, the market value of fixed-rate mortgages decreases, which can lead to losses for savings institutions. Therefore, reducing the amount of fixed-rate mortgages will best reduce their exposure to interest rate risk. The other options, such as consumer loans, commercial loans, and short-term securities, may also be affected by interest rate changes but to a lesser extent than fixed-rate mortgages.

Savings Institutions That Reduce Their Amount of ____ Will Best