Can an FI Immunize Itself Against Interest Rate Risk Exposure

question 49

Multiple Choice

Can an FI immunize itself against interest rate risk exposure even though its maturity gap is not zero?

• A)Yes, because with a maturity gap of zero the change in the market value of assets exactly offsets the change in the market value of liabilities.
• B)No, because with a maturity gap of zero the change in the market value of assets exactly offsets the change in the market value of liabilities.
• C)Yes, because the maturity model does not consider the timing of cash flows.
• D)No, because the timing of cash flows is relevant to immunization against interest rate risk exposure.
• E)No, because a representative bank will always have a positive maturity gap.

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Definitions:

TsCl

Tosyl chloride, a compound used to activate alcohols for substitution reactions or convert them into tosylates, enhancing their reactivity.

LiAlH4

Lithium aluminium hydride, a strong reducing agent commonly used in organic chemistry to reduce aldehydes, ketones, and esters to alcohols.

Methanol Poisoning

A toxic condition resulting from the ingestion of methanol, causing symptoms such as visual disturbances and metabolic acidosis.

Ethylene Glycol

A colorless, odorless, sweet-tasting, viscous liquid used primarily as an antifreeze and in the manufacture of polyesters.