Question: A depository institution seeks to earn a positive spread between the assets it invests in (deposits and other sources) and the cost of its funds

A depository institution seeks to earn a positive spread between the assets it invests in (deposits and other sources) and the cost of its funds (loans and securities).

Interest rate risk refers to the risk that a borrower will default on a loan obligation to the depository institution or that the issuer of a security that the depository institution holds will default on its obligation

A depository institution seeks to earn a positive spread between the assets it invests in (loans and securities) and the cost of its funds (deposits and other sources).

If the spread will be positive, it will cost the depository institution more to finance the government securities than it will earn on the funds invested in those securities.

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