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FINA 365 Chapter 7 Exam with Questions and Answers Holding corporate bonds with fixed interest rates involves A. default risk only. B. interest rate risk only. C. liquidity risk and interest rate risk only. D. default risk and interest rate risk. E. default and liquidity risk only. ANSWER✓✓ D Regulation limits FI investment in non-investment grade bonds (rated below Baa or non-rated). What kind of risk is this designed to limit? A. Liquidity risk. B. Interest rate risk. C. Credit risk. D. Foreign exchange rate risk. E. Off-balance sheet risk. ANSWER✓✓ C What type of risk focuses upon mismatched asset and liability maturities and durations? A. Liquidity risk. B. Interest rate risk. C. Credit risk. D. Foreign exchange rate risk. E. Off-balance sheet risk. ANSWER✓✓ B The asset transformation function potentially exposes the FI to A. foreign exchange risk.
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