Setting the duration of the assets higher than the duration of the liabilities will exactly immunize the net worth of an FI from interest rate shocks.

Question

Quizplus · Accepted Answer

While setting the duration of the assets higher than the duration of the liabilities can help mitigate interest rate risk, it does not provide complete immunization. The movement of interest rates can still have an impact on the net worth of an FI, as the change in value of the assets and liabilities may not be perfectly offsetting.

Setting the Duration of the Assets Higher Than the Duration