An FI with a Negative Duration Gap Is Exposed to Interest

question 118

True/False

An FI with a negative duration gap is exposed to interest rate declines and could hedge its interest rate risk by buying forward contracts.

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Definitions:

Elastic

In economics, elasticity refers to the degree to which demand or supply responds to changes in price. High elasticity means a significant change in quantity with a small change in price.

Unit-elastic

A situation in which the percentage change in quantity demanded is equal to the percentage change in price, indicating a unitary elasticity of demand.

Labor Demand

Refers to the quantity of workers that employers are willing to hire at a given wage rate.

Rapidly Declining

This term describes a situation where values, prices, or quantities are decreasing quickly over a period of time.