The Following Information Is About Current Spot Rates for Second

Multiple Choice

The following information is about current spot rates for Second Duration Savings' assets (loans) and liabilities (CDs) . All interest rates are fixed and paid annually. What is the interest rate risk exposure of the optimal transaction in the previous question over the next 2 years?

A) The risk that interest rates will rise since the FI must purchase a 2-year CD in one year.
B) The risk that interest rates will rise since the FI must sell a 1-year CD in one year.
C) The risk that interest rates will fall since the FI must sell a 2-year loan in one year.
D) The risk that interest rates will fall since the FI must buy a 1-year loan in one year.
E) There is no interest rate risk exposure.