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A local commercial bank accepts mostly short-term deposits and makes mostly longer-term fixed-rate loans. It will...

Question

A local commercial bank accepts mostly short-term deposits and makes mostly longer-term fixed-rate loans. It will...

A local commercial bank accepts mostly short-term deposits and makes mostly longer-term fixed-rate loans. It will be adversely affected if the Fed ________________.

A.

Maintains a stable money supply

B.

Raises interest rates incrementally over a relatively short period of time

C.

Monetizes the debt

D.

Uses repurchase agreements to inject reserves into the banking system

Answers

Option B Raises interest rates incrementally over a relatively short period of time ..In this case, cost of liabilities for the bank will increase but return on assets will not increase hence NIM will decrease


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