Explanation:
The increasing holdings of longer-maturity securities, particularly government bonds, exposes EME banks to greater valuation risk. When interest rates rise, the market value of these securities declines.
A is incorrect: The trend has been towards increased holdings of securities, not a decrease.
B is incorrect: EME banks have traditionally focused on short-term lending, but the increasing securities holdings are the source of the increased valuation risk.
D is incorrect: While funding sources may diversify over time, the increased securities holdings are the primary driver of increased valuation risk.
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Q.6360 Which of the following factors has contributed to EME banks' increasing exposure to valuation risk from interest rate changes in recent years?
A
A decrease in their holdings of government securities.
B
A shift towards shorter-term lending practices.
C
An increase in their holdings of longer-maturity securities.
D
A reduction in the use of time deposits as a funding source.