What are the weaknesses of using static GAP analysis versus duration gap analysis?
A)Static GAP ignores the time value of money.
B)Static GAP ignores the cumulative impact of interest rate changes on a bank's risk profile.
C)Static GAP does not proscribe the treatment of demand deposits.
D)All of the above are weaknesses of using static GAP analysis versus duration gap analysis.
E)a.and b.

Question

Quizplus · Accepted Answer

All of the above are weaknesses of using static GAP analysis versus duration gap analysis. Static GAP analysis only provides a snapshot of a bank's interest rate risk exposure at a particular point in time and does not take into account the time value of money or the cumulative impact of interest rate changes on the bank's risk profile over time. Additionally, static GAP analysis does not proscribe the treatment of demand deposits, which can be an important source of funding for banks. Duration gap analysis, on the other hand, considers the timing and duration of cash flows, providing a more accurate picture of a bank's interest rate risk exposure over time.

What Are the Weaknesses of Using Static GAP Analysis Versus