Essay
Assume that you are a financial advisor to ABC Bank. The bank wishes to invest $50 million in loans with an average maturity of 3 years. The average interest rate on these loans is 12 per cent p.a. The bank can either grant the loans at a variable rate or at a fixed rate for the time of the investment. ABC Bank has the choice of funding these loans through either at-call deposits or through 5-year maturity term deposits. Explain the different types of risks that ABC Bank faces when funding its loans.
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