9-67 Which of the following statements is true?
A)The optimal duration gap is zero.
B)Duration gap measures the impact of changes in interest rates on the market value of equity.
C)The shorter the maturity of the FI's securities,the greater the FI's interest rate risk exposure.
D)The duration of all floating rate debt instruments is equal to the time to maturity.
E)The duration of equity is equal to the duration of assets minus the duration of liabilities.

Question

Quizplus · Accepted Answer

Duration gap measures the impact of changes in interest rates on the market value of assets and liabilities, not equity. The optimal duration gap varies depending on the FI's specific circumstances, but it is generally not zero. The longer the maturity of the FI's securities, the greater the FI's interest rate risk exposure. Floating rate debt instruments do not have a fixed duration, as their cash flows change with changes in interest rates. Equity does not have a duration measure.

9-67 Which of the Following Statements Is True