Interest Rate Uncertainty and the Financial Intermediary's Choice of Exposure

SUDHAKAR D. DESHMUKH*, STUART I. GREENBAUM, GEORGE KANATAS

*Corresponding author for this work

Research output: Contribution to journalArticle

35 Scopus citations

Abstract

The financial intermediary's choice of operating as a broker with minimal risk exposure or as an asset‐transformer with interest rate risk is modeled as a funds inventory decision made prior to the resolution of uncertainty regarding the borrowing or lending interest rates. It is shown that an increase in the interest rate uncertainty leads the intermediary to reduce its exposure, thereby offering decreased asset‐transformation and more brokerage services. However, a stochastic increase in the interest rates leads to greater asset‐transformation and less brokerage services. 1983 The American Finance Association

Original languageEnglish (US)
Pages (from-to)141-147
Number of pages7
JournalJournal of Finance
Volume38
Issue number1
DOIs
StatePublished - Jan 1 1983

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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