The Shortcomings of This Strategy Are the Following Except

question 35

Multiple Choice

The shortcomings of this strategy are the following except

• A)duration changes as the time to maturity changes,making it difficult to maintain a continuous hedge.
• B)estimation of duration is difficult for some accounts such as demand deposits and passbook savings account.
• C)it ignores convexity which can be distorting for large changes in interest rates.
• D)it is difficult to compute market values for many assets and liabilities.
• E)it does not assume a flat term structure,so its estimation is imprecise.

---

Definitions:

Shut Down

A short-term decision by a firm to cease operations temporarily due to unfavorable market conditions.

ATC Curve

Average Total Cost Curve; a graph that shows the per-unit cost of production at every level of output.

AVC Curve

Average Variable Cost Curve, it represents the change in variable cost associated with producing more units of a good or service.

Variable Input

An input in the production process that can be altered in the short term to adjust the level of output.