9-119 What Is This Bank's Interest Rate Risk Exposure,if Any

question 88

Essay

9-119 What is this bank's interest rate risk exposure,if any?
a.The bank is exposed to decreasing interest rates because it has a negative duration gap of ?0.21 years.
b.The bank is exposed to increasing interest rates because it has a negative duration gap of ?0.21 years.
c.The bank is exposed to increasing interest rates because it has a positive duration gap of +0.21 years.
d.The bank is exposed to decreasing interest rates because it has a positive duration gap of +0.21 years.
e.The bank is not exposed to interest rate changes since it is running a matched book.

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Definitions:

Diminishing Marginal Utility

The principle that as more of a good or service is consumed, the additional satisfaction or utility gained from consuming an additional unit declines.

Total Utility

The total satisfaction or benefit received by consuming a given total quantity of a good or service.

Utils

A theoretical unit of measurement used in economics to represent satisfaction or utility obtained by consuming goods and services.

Income Effect

Changes in economic or personal income and the resulting impact on how much of a product or service is sought after.