Explanation:
The increased exposure of EME banks to interest rate fluctuations is primarily due to the accumulation of longer-duration securities as part of government debt absorption. With extended maturities now prevalent in their portfolios, these banks face heightened valuation risks when interest rates rise, as the longer-term securities are more sensitive to such fluctuations, impacting balance sheet stability.
Choice B is incorrect. Decreasing short-term loans would not lead to greater exposure; this represents risk mitigation.
Choice C is incorrect. Liquidity issues relate more to operational constraints than interest rate exposure.
Choice D is incorrect. Expansion in foreign currency swaps addresses exchange rate risk, not interest rate sensitivity.
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Q.6348 Recent shifts in emerging market economies (EME) banks' asset compositions have changed their exposure to interest rate risk. Which recent change has most significantly increased EME banks' exposure to interest rate fluctuations?
A
An increase in longer-duration securities holdings due to government debt absorption.
B
A decrease in short-term loan offerings.
C
A reduction in the liquidity of traditional deposits.
D
An expansion in the availability of foreign currency swaps.
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