As a bank`s borrowing rate increases, which of the following is true if a bank calculates FVA
A. FVA increases
B. FVA declines
C. FVA stays the same
D. FVA may increase or decline.
A
FVA is the funding value adjustment. As borrowing costs increase it costs the bank more to fund its operations and FVA increases. (In theory, as explained in the text, funding value adjustments should not be made but in practice they are often made.)
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