When DGAP > 0, DA Must Be Above DL

question 13

True/False

When DGAP > 0, DA must be above DL. An interest rate increase will lead to a fall in the value of both the asset and the liability, but, since it has the higher duration, the price of the asset will fall further; that is, we will lose.

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Definitions:

Business Revenues

The income generated from the sale of goods and services before any costs or expenses are deducted.

Economic Losses

The difference when total costs exceed total revenues, indicating a negative outcome from business activities.

Principal-Agent Problem

A conflict in priorities between a person or group (the agent) making decisions on behalf of another person or group (the principal).

Negative Externality

A cost that affects a party who did not choose to incur that cost, often associated with production or consumption of goods and services.