7-5 An FI that is short-funded faces the risk that the return of reinvesting assets could exceed the cost of funding those assets.

Question

Quizplus · Accepted Answer

A short-funded FI is one that borrows money to invest in assets. In this case, the cost of funding those assets is likely to be higher than the return on reinvesting those assets, as the FI is already short on funds. Therefore, the risk is that the cost of funding will exceed the return on investment.

7-5 an FI That Is Short-Funded Faces the Risk That