The Structure of a Bank's Balance Sheet as Evidenced by Its

question 20

Multiple Choice

The structure of a bank's balance sheet as evidenced by its repricing gap and its duration gap affects a bank's sensitivity to interest rate changes. Which one of the following statements about the two types of gaps is true?

• A)The repricing gap immunizes the present value of all future cash flows,whereas managing the duration gap can stabilize future cash flows,but not their present value.
• B)The duration gap considers all cash flows up to and including maturity,whereas the repricing gap really only considers how cash flows will change within the maturity bucket.
• C)If a bank could only manage one type of gap,the bank would limit its interest rate risk the most by managing its repricing gap instead of its duration gap.
• D)The repricing gap is superior to the duration gap since the repricing gap has a well-defined maturity bucket.
• E)It is virtually impossible for an institution to have both a positive duration gap and a negative repricing gap at the same time.