Question

Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of ____________________ by adopting a strategy that will ______________.

A. rising interest rates; diversify its loans
B. rising interest rates; provide loans to a variety of customers
C. an increased reserve requirement; provide loans to a variety of customers
D. Dan asset-liability time mismatch; diversify its loans

Answer 1

Answer: The correct answer is "D. an asset-liability time mismatch; diversify its loans."

Explanation: Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of "an asset-liability time mismatch" by adopting a strategy that will diversify its loans.