24-36 A bank with a strong positive leverage adjusted duration gap can hedge their exposure to interest rate increases by entering into
A)a currency swap agreement to receive the fixed rate payment.
B)an interest rate swap agreement to make the fixed-rate payment side of the swap.
C)a credit swap agreement to receive the floating rate payment.
D)a commodity swap agreement to make the fixed-rate payment side of the swap.
E)an equity swap agreement to make the floating-rate payment side of the swap.

Question

Quizplus · Accepted Answer

An interest rate swap agreement would allow the bank to effectively convert their exposure to a fixed rate, providing protection against interest rate increases. They would be able to make the fixed-rate payment side of the swap, effectively locking in their borrowing costs. A currency swap, credit swap, commodity swap, or equity swap would not provide the same protection against interest rate increases.

24-36 a Bank with a Strong Positive Leverage Adjusted Duration