Which of the following statements about leverage adjusted duration gap is true?
A)It is equal to the duration of the assets minus the duration of the liabilities.
B)The larger the gap in absolute terms, the more exposed the FI is to interest rate shocks.
C)It reflects the degree of maturity mismatch in an FI's balance sheet.
D)It indicates the dollar size of the potential net worth and its value is equal to duration divided by (1+R).

Question

Quizplus · Accepted Answer

Leverage adjusted duration gap reflects the degree of interest rate sensitivity of an FI's balance sheet considering leverage. A larger gap in absolute terms means the FI is more exposed to interest rate shocks. The leverage adjusted duration gap is calculated by dividing the duration gap by 1 plus the debt-to-equity ratio. Statements A, C, and D are incorrect.

Which of the Following Statements About Leverage Adjusted Duration Gap