Answer: Use short-term repurchase agreements, or commercial paper for financing long-term assets.

## Explanation During the 2007-2008 credit crisis, the asset-liability mismatch phenomenon was characterized by financial institutions using **short-term financing** (such as repurchase agreements and commercial paper) to fund **long-term assets** (like mortgage-backed securities and other structured products). **Why Option C is correct:** - This accurately describes the core issue: using short-term funding sources to finance long-duration assets - Repurchase agreements (repos) and commercial paper were indeed the primary short-term funding mechanisms - This mismatch created significant liquidity risk when short-term funding markets froze **Why other options are incorrect:** - **Option A**: Describes the opposite scenario - short-term assets with short-term financing, which is not a mismatch - **Option B**: Mentions long-term bonds as funding, which would actually reduce mismatch risk - **Option D**: Is factually incorrect - asset-liability maturity mismatch inherently creates funding liquidity risk This mismatch was a key contributor to the crisis as institutions faced rollover risk when they couldn't renew their short-term funding, leading to liquidity crises and failures.

Author: LeetQuiz .