8-49 A bank that finances long-term fixed-rate mortgages with short-term deposits is exposed to
A)increases in net interest income and decreases in the market value of equity when interest rates fall.
B)decreases in net interest income and decreases in the market value of equity when interest rates fall.
C)decreases in net interest income and increases in the market value of equity when interest rates increase.
D)increases in net interest income and increases in the market value of equity when interest rates increase.
E)decreases in net interest income and decreases in the market value of equity when interest rates increase.

Question

Quizplus · Accepted Answer

When interest rates increase, the cost of short-term deposits rises, reducing net interest income, and the market value of fixed-rate mortgages decreases, reducing the market value of equity.

8-49 a Bank That Finances Long-Term Fixed-Rate Mortgages with Short-Term