In order to achieve a zero duration gap, an FI can:
A)change the duration of its assets only
B)change the duration of its liabilities only
C)change the duration of both, assets and liabilities
D)All of the listed options are correct.

Question

Quizplus · Accepted Answer

To achieve a zero duration gap, a financial institution (FI) can adjust the duration of its assets, its liabilities, or both. This is because the duration gap measures the sensitivity of the value of an FI's net worth to changes in interest rates, which can be managed by aligning the durations of assets and liabilities.

In Order to Achieve a Zero Duration Gap, an FI