The Shortcomings of This Strategy Are the Following Except

question 98

Multiple Choice

The shortcomings of this strategy are the following except

• A)duration changes as the time to maturity changes, making it difficult to maintain a continuous hedge.
• B)estimation of duration is difficult for some accounts such as demand deposits and passbook savings account.
• C)it ignores convexity which can be distorting for large changes in interest rates.
• D)it is difficult to compute market values for many assets and liabilities.
• E)it does not assume a flat term structure, so its estimation is imprecise.
• [Refer to: 9-121]

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Definitions:

Ratio

A ratio is a relationship between two numbers indicating how many times the first number contains the second or how these two quantities are proportionally related.

Circular Pool

A pool shaped in a perfect circle, often used in geometry to discuss circumference, area, and other circular measurements.

Rectangular Pool

A swimming pool shaped like a rectangle, with two pairs of parallel sides and four right angles.

Divide

A fundamental arithmetic operation that consists of determining how many times one number is contained within another.