Duration Is a Less Accurate Predictor for the Change in an FI's

question 17

Multiple Choice

Duration is a less accurate predictor for the change in an FI's net worth in case of large interest rate shocks because it assumes a:

• A)linear relationship between the change in an asset or liability's price and the change in the interest rate, while the true relationship is convex
• B)linear relationship between the change in an asset or liability's price and the change in the interest rate, while the true relationship is concave
• C)convex relationship between the change in an asset or liability's price and the change in the interest rate, while the true relationship is linear
• D)concave relationship between the change in an asset or liability's price and the change in the interest rate, while the true relationship is linear

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Definitions:

Growth Rate

The rate at which the number of individuals in a population increases in a given time period as a result of birth, death, and migration.

Environmental Problems

Issues caused by human activity or natural processes that harm the natural environment and negatively impact ecosystem health and biodiversity.

Exponentially

At an increasingly rapid rate, describing a process of multiplication by a constant at set intervals.

Renewable Resources

Resources that can be replenished naturally over time, such as solar and wind energy.