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Mortgages with short-term savings deposits

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Reference no: EM132198973

Savings and loans finance fixed-rate, long-term, 30-year home mortgages with short-term savings deposits. Is this risky?

a. Yes, because an increase in nominal interest rates will push up costs far more than revenues, and decrease profits.

b. Yes, because a reduction in nominal interest rates will reduce income far more than costs, and decrease profits.

c. No; if nominal interest rates rise, income and costs will increase by similar amounts, leaving profits unchanged.

d. No; neither income nor costs will be affected by changes in nominal interest rates, and profits would not be affected.

e. Both A and B are correct.

Reference no: EM132198973

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