When a bank raises funds in the international markets to fund new lending growth and hedges the exposure of the raised debt to interest rate risk with the help of derivatives, it is involved in: Question 1Select one:a.liability management b.asset management c.derived management d.off-balance-sheet management
Question
When a bank raises funds in the international markets to fund new lending growth and hedges the exposure of the raised debt to interest rate risk with the help of derivatives, it is involved in: Question 1Select one:a.liability management b.asset management c.derived management d.off-balance-sheet management
Solution
The bank is involved in a. liability management.
Here's why:
Liability management involves managing the way a bank raises money to fund its activities. In this case, the bank is raising funds in the international markets to fund new lending growth. This is a form of liability management because the bank is managing its debts (liabilities) by raising funds.
The bank is also hedging the exposure of the raised debt to interest rate risk with the help of derivatives. This is another aspect of liability management. By hedging the interest rate risk, the bank is managing its liabilities in a way that reduces its exposure to changes in interest rates.
Therefore, the bank is involved in liability management.
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