Immunizing the Balance Sheet to Protect Equity Holders from the Effects

question 121

Multiple Choice

Immunizing the balance sheet to protect equity holders from the effects of interest rate risk occurs when

• A)the maturity gap is zero, so that all assets have a matching-maturity liability.
• B)the repricing gap is zero, so that all assets have a matching liability that reprices at the same time.
• C)the modified duration gap of the balance sheet is zero.
• D)the effect of a change in the level of interest rates on the value of the assets of the FI is exactly offset by the effect of the same change in interest rates on the liabilities of the FI.
• E)When the modified duration is equal to the dollar duration.

---

Definitions:

Negligent

Failure to take proper care in doing something, leading to damage or harm to another person.

Agency

A relationship between two parties, where one, the agent, is authorized to act on behalf of the other, the principal, in legal or business matters.

Modern Firms

Refers to contemporary businesses characterized by innovative practices, technology use, and agile structures.

Foreign Countries

Nations or territories outside one's own country, governed by distinct legal, political, and cultural systems.