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BEO2000 Financial institution and monetary theory

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Q1: If a bank expects interest rates to consistently ____ over time, it will consider allocating most of its funds to rate-____ assets. a. decrease; sensitive b. increase; insensitive c. increase; sensitive d. none of the above Q2: Banks generally ____ loans and ____ their purchases of low-risk securities when the economy is weak. a. increase; increase b. reduce; reduce c. increase; reduce d. reduce; increase Q3: If a bank has assets and liabilities in dollars and euros, its exposure to interest rate risk can best be minimised if the a. currency mix of assets is similar to that of liabilities. b. overall rate-sensitivity of assets and liabilities are similar. c. rate sensitivity of assets and liabilities is matched for each currency. d. A and B

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