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Explanation:
Funding long-term assets with short-term debt exposes an intermediary to rollover risk, the risk that the short-term debt cannot be refinanced, or can be refinanced only on highly disadvantageous terms.
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Q.2284 In a recent discussion between two senior risk managers at a Chinese bank, the topic of rollover risk was brought up as a growing concern for their institution. What does the term "rollover risk" most likely refer to?
A
The bank was increasingly lending money to high-risk individuals, thereby increasing its exposure to credit risk.
B
The amount recovered from non-performing loans was gradually declining, thereby increasing the bank’s losses.
C
The bank was increasingly financing long-term loans with short-term deposits, thereby making it hard to repay its own short-term debt.
D
The bank’s portfolio at risk was growing at a relatively higher rate.
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