the economics of money, banking, and financial markets

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13.5 Managing Interest-Rate Risk

1. 
   

   Risk that is related to the uncertainty about interest rate movements is called ____.
   A) default risk
   B) interest-rate risk
   C) the problem of moral hazard
   D) security risk
   Answer: B
   Diff: 1 Type: MC Page Ref: 311 - 312
   Skill: Recall
   Objective List: 13.3 Discuss how bank managers manage credit risk and interest-rate risk

   
   


2. 
   

   All else the same, if a bank's liabilities are more sensitive to interest rate fluctuations than are
   its assets, then ____ in interest rates will ____ bank profits.
   A) an increase; increase
   B) an increase; reduce
   C) a decline; reduce
   D) a decline; not affect
   Answer: B
   Diff: 1 Type: MC Page Ref: 312
   Skill: Recall
   Objective List: 13.3 Discuss how bank managers manage credit risk and interest-rate risk

   
   


3. 
   

   If a bank has ____ rate-sensitive assets than liabilities, then ____ in interest rates
   will increase bank profits.
   A) more; a decline
   B) more; an increase
   C) fewer; an increase
   D) fewer; a surge
   Answer: B
   Diff: 1 Type: MC Page Ref: 312
   Skill: Recall
   Objective List: 13.3 Discuss how bank managers manage credit risk and interest-rate risk

   
   


4. 
   

   If a bank has ____ rate-sensitive assets than liabilities, a ____ in interest rates will
   reduce bank profits, while a ____ in interest rates will raise bank profits.
   A) more; rise; decline
   B) more; decline; rise
   C) fewer; decline; decline
   D) fewer; rise; rise
   Answer: B
   Diff: 1 Type: MC Page Ref: 312
   Skill: Recall
   Objective List: 13.3 Discuss how bank managers manage credit risk and interest-rate risk