Maturity transformation is conversion of long-term liabilities to short-term assets.

Question

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Maturity transformation is the conversion of short-term liabilities into long-term assets, not the other way around. It is a process that banks use to take in and lend out funds with varying maturities in order to earn a profit on the spread between the interest rates they pay and the rates they charge. By using maturity transformation, banks can assume some level of risk but also potentially earn higher returns.

Maturity Transformation Is Conversion of Long-Term Liabilities to Short-Term Assets