If a bank has a positive duration gap, an increase in interest rates will tend to cause the equity value of the bank to increase.

Question

Quizplus · Accepted Answer

A positive duration gap means that the duration of assets is greater than the duration of liabilities. If interest rates increase, the value of assets (which are more sensitive to interest rate changes due to their longer duration) will decrease more than the value of liabilities, leading to a decrease in the bank's equity value.

If a Bank Has a Positive Duration Gap, an Increase