9-56 The larger the size of an FI,the larger the _________ from any given interest rate shock.
A)duration mismatch
B)immunization effect
C)net worth exposure
D)net interest income
E)risk of bankruptcy

Question

Quizplus · Accepted Answer

A larger FI will typically have a larger portfolio of assets and liabilities. Therefore, any given interest rate shock will have a larger impact on the FI's net worth exposure, or the difference between the value of its assets and liabilities. This is because the FI's assets and liabilities may have different maturities and yields, resulting in a duration mismatch that can amplify the impact of interest rate changes on its earnings and capital. A larger net worth exposure can increase the FI's vulnerability to interest rate fluctuations and may require it to take steps to manage its risk exposure or adjust its asset and liability mix to minimize its net interest income volatility.

9-56 the Larger the Size of an FI,the Larger the _________