Explanation:
EME banks typically have a large proportion of short-term, floating-rate loans in their asset structure. This characteristic allows them to frequently reprice their loans in response to changes in market interest rates, thereby effectively managing repricing gaps and mitigating interest rate risk (IRR). This strategy aligns well with the relatively volatile interest rate environments often observed in emerging markets.
A is incorrect: Long-term, fixed-rate mortgages are less sensitive to short-term rate changes and are more characteristic of AE banks.
B is incorrect: The type of borrower doesn't directly determine the repricing characteristics of the loan.
C is incorrect: A diversified securities portfolio introduces valuation risk, which repricing gap management doesn't fully address.
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Q.6355 EME banks have historically relied on managing repricing gaps to mitigate interest rate risk. What is a key characteristic of their asset structure that supports this strategy?
A
A large proportion of long-term, fixed-rate mortgages.
B
A high concentration of loans to large multinational corporations.
C
A diversified portfolio of securities with varying maturities.
D
A significant portion of short-term, floating-rate loans.
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