FINA 365 - Exam 2 - Review Questions and Answers, Exams of Business Finance

FINA 365 - Exam 2 - Review Questions and Answers The risk that an investor will be forced to place earnings from a loan or security into a lower yielding investment is known as a.) liquidity risk b.) reinvestment risk c.) credit risk d.) foreign exchange risk e.) off-balance-sheet risk ANSWER✓✓ b.) reinvestment risk "Matching the book" or trying to match the maturities of assets and liabilities is intended to protect the FI from a.) liquidity risk b.) interest rate risk c.) credit risk d.) foreign exchange risk e.) off-balance-sheet risk ANSWER✓✓ b.) interest rate risk When the assets and liabilities of an FI are not equal in size, efficient hedging of interest rate risk can be achieved by a.) increasing the duration of assets and increasing the duration of equity b.) issuing more equity and reducing the amount of borrowed funds c.) not exactly matching the maturities of assets and liabilities d.) issuing more equity and investing the funds in higher-yielding assets