A Bank Has a Negative Duration Gap

question 39

Multiple Choice

A bank has a negative duration gap. Interest rates decline. Which one of the following best describes the effects of the interest rate change?

• A)The bank's market value of equity is unchanged since the market value of its assets and liabilities moves in the same direction.
• B)The bank's market value of equity goes up because the market value of its assets goes up by more than the market value of its liabilities goes down.
• C)The bank's market value of equity goes down because the market value of its assets goes up by more than the market value of its liabilities goes down.
• D)The bank's market value of equity goes down because the market value of its assets goes down by more than the market value of its liabilities goes down.
• E)The bank's market value of equity goes down because the market value of its liabilities increases by more than the market value of its assets increases.

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Definitions:

Hybridization

A concept in chemistry where atomic orbitals mix to form new hybrid orbitals, explaining the bonding in molecules.

Atom

The basic unit of a chemical element, consisting of a nucleus of protons and neutrons, with electrons orbiting the nucleus.

Molecule

The smallest particle in a chemical element or compound that has the chemical properties of that element or compound, consisting of two or more atoms bonded together.

Constitutional Isomer

Molecules with the same molecular formula but different arrangements of atoms in space.