Question

Maturity transformation is the process by which banks​ ____________.

a. convert​ short-term assets into​ long-term assets.
b. transform interest earnings from investments into​ stockholders' equity.
c. transfer​ long-term liabilities into​ short-term investments.
d. transfer​ short-term liabilities into​ long-term investments.

Answer 1

Answer: d. transfer short-term liabilities into long-term investments.

Maturity transformation Is the process by which banks take short-maturity liabilities like customers deposits, short-term debt, accounts, and taxes payable and invest them in long maturity assets or income-generating investments like residential mortgages and bonds.