Suppose a financial institution (FI) issues two-year CDs (with depositors having the option to rollover) to finance

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Suppose a financial institution (FI) issues two-year CDs (with depositors having the option to rollover) to finance a $1B 20-year fixed-rate loans for a power plant. What is the likely outcome?

A. Interest rate risk is tremendous. There is a gross mismatch of duration of the FI’s assets and liabilities.

B. Interest rate increase is good for the FI.

C. Interest rate decrease is bad for the FI.

D. The CDs are the bank’s assets and the loans are the bank’s liabilities.

Related Book For answer-question

Financial Reporting Financial Statement Analysis and Valuation a strategic perspective

ISBN: 978-1337614689

9th edition

Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

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Posted Date: Nov 11, 2023 12:08 AM

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Suppose a financial institution (FI) issues two-year CDs (with depositors having the option to rollover) to finance

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Financial Reporting Financial Statement Analysis and Valuation a strategic perspective

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