The Measure of Interest Rate Risk That Uses the Difference

question 14

Multiple Choice

The measure of interest rate risk that uses the difference between rate-sensitive assets and rate-sensitive liabilities is called

• A) gap measurement.
• B) duration measurement.
• C) duration ratio.
• D) gap ratio.

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Definitions:

Product Purchases

Transactions involving the buying of goods or services for commercial purposes or for use in production.

Maturity Risk Premium

The additional return that investors require for holding a longer-term bond, compensating for the increased risk of price fluctuations and inflation over time.

Default Risk Premium

The additional yield that a borrower must pay to compensate the lender for the risk that the borrower may default on the loan.

Pure Rate

The real rate of interest that would exist in the market in the absence of inflation, default risk, and other factors that could affect nominal rates.