If a Bank Has a Duration Gap of Two Years,a

question 75

Multiple Choice

If a bank has a duration gap of two years,a fall in interest rates from 5% to 8% per annum will lead to a/an:

• A) increase of 5.71% in the market value of its net worth.
• B) fall of 5.71% in the market value of its net worth.
• C) increase of 5.71% in net interest income.
• D) fall of 5.71% in net interest income.

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Definitions:

Marginal Product

The additional output generated by employing one more unit of a particular input, keeping other inputs constant.

Units of Labor

Measurements used to quantify the work input by labor forces, often referring to hours worked or number of workers.

Diminishing Returns

A principle stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output.

Marginal Product Curve

A graphical representation that shows how the addition of one more unit of a resource to production affects the output of a product.