Can an FI Immunize Itself Against Interest Rate Risk Exposure

question 88

Multiple Choice

Can an FI immunize itself against interest rate risk exposure even though its maturity gap is not zero?

• A)Yes,because with a maturity gap of zero the change in the market value of assets exactly offsets the change in the market value of liabilities.
• B)No,because with a maturity gap of zero the change in the market value of assets exactly offsets the change in the market value of liabilities.
• C)Yes,because the maturity model does not consider the timing of cash flows.
• D)No,because the timing of cash flows is relevant to immunization against interest rate risk exposure.

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Definitions:

Rate of Yield

The return on an investment expressed as a percentage, which can be calculated based on income received and the original or current value of the investment.

Differential Rate

A differential rate refers to a pricing strategy where the rate charged varies based on certain conditions or parameters, often seen in shipping or finance sectors.

Commission Charges

Fees paid to agents or brokers for their services, typically a percentage of the transaction value.

Total Purchase Costs

refers to the aggregate cost of buying an item or service, including the purchase price, taxes, shipping, and any additional fees.