How can interest rate risk adversely affect the economic or market value of an FI?
Answer to relevant QuestionsHow does a policy of matching the maturities of assets and liabilities work (a) to minimize interest rate risk and (b) against the asset-transformation function for FIs?If the Swiss franc is expected to depreciate in the near future, would a U. S. – based FI in Bern City, Switzerland, prefer to be net long or net short in its asset positions? Discuss.If an FI has the same amount of foreign assets and foreign liabilities in the same currency, has that FI necessarily reduced the risk involved in these international transactions to zero? Explain.Suppose you purchase a 10-year AAA-rated Swiss bond for par that is paying an annual coupon of 8 percent and has a face value of 1,000 Swiss francs (SF). The spot rate is U. S. $ 0.66667 for SF1. At the end of the year, the ...Why must an account officer be well versed in the FI’s credit policy before talking to potential mid-market business borrowers?
Post your question