Answer-first summary for fast verification
Answer: Tax swap
**D is correct.** The bank can sell its US Treasury bonds to trigger losses and reinvest in higher yielding US Treasury bonds. Likewise, the record profitability will offset the bond sale losses and through both thereby maintain its current level of total income. **A is incorrect.** A barbell strategy is utilized when a bank has two concerns: short-term liquidity and income. **B is incorrect.** Carry trade is not effective when the yield curve is flat because it involves borrowing funds at the short end of the yield curve and investing funds at the long end of the curve to capture the higher interest rate. **C is incorrect.** Riding the Yield Curve will increase income to the bank as securities previously purchased are later sold as the time to maturity declines in combination with moving down an upward sloping yield curve. Since the yield curve is flat this strategy is not appropriate.
Author: LeetQuiz .
Ultimate access to all questions.
A bank treasurer is seeking to identify the most appropriate investment maturity strategy to apply considering the status of its balance sheet and the economic conditions it is currently facing. The treasurer gathers the following information:
Which of the following strategies would be the most appropriate for the bank to take in order to maintain its current level of total income?
A
Barbell strategy
B
Carry trade
C
Riding the yield curve
D
Tax swap
No comments yet.