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.

Question

Quizplus · Accepted Answer

Leverage-adjusted duration gap measures the difference between the duration of assets and liabilities, adjusted for the size of the balance sheet. A larger gap in absolute terms means that the FI is more exposed to interest rate shocks. Option A is incorrect as it only refers to the duration difference without considering the balance sheet size. Option C is also partially correct but does not consider the leverage aspect. Option D is incorrect as leverage-adjusted duration gap does not indicate the potential net worth.

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