If a Fall in Interest Rates Causes a Bank's Market

question 82

Multiple Choice

If a fall in interest rates causes a bank's market value of net worth to rise,the bank must have a:

• A) positive duration gap for its portfolio of assets and liabilities.
• B) negative duration gap for its portfolio of assets and liabilities.
• C) negative gap.
• D) positive gap.

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Definitions:

CSB

Canadian Savings Bonds, a secure savings product issued and guaranteed by the Government of Canada.

Compound-Interest

A method of calculating interest where the amount is based on the initial principal and the interest that has been accumulated in past periods.

Compounded Quarterly

Involves calculating interest on an investment by adding the accrued interest back into the principal at the end of each quarter, effectively earning interest on interest.

GIC

Guaranteed Investment Certificate, a Canadian investment that offers a guaranteed rate of return over a fixed period, typically without the risk of losing the principal invested.