Which of the following statements about leverage-adjusted duration gap is true?
A)It is equal to the duration of the assets minus the duration of the liabilities.
B)Larger the gap in absolute terms, the more exposed the FI is to interest rate shocks.
C)It reflects the degree of maturity mismatch in an FI's balance sheet.
D)It indicates the dollar size of the potential net worth.
E)Its value is equal to duration divided by (1 + R).

Question

Quizplus · Accepted Answer

Leverage-adjusted duration gap measures the potential impact of interest rate changes on an FI's net worth. A larger gap in absolute terms indicates that the FI is more exposed to interest rate shocks. Duration gap is the difference between the duration of assets and liabilities, while leverage-adjusted duration gap considers the level of leverage used by the FI in its balance sheet. Therefore, option B is correct. The other options are either incorrect or partially correct.

Which of the Following Statements About Leverage-Adjusted Duration Gap Is