A Financial Institution Has Equity Equal to One-Tenth of Its

question 8

Multiple Choice

A financial institution has equity equal to one-tenth of its assets. If its asset duration is currently equal to its liability duration,then to immunize,the firm needs to:

• A) decrease the duration of its assets.
• B) increase the duration of its assets.
• C) decrease the duration of its liabilities.
• D) do nothing, i.e., keep the duration of its liabilities equal to the duration of its assets.

---

Definitions:

Absolute Advantage

The ability of an entity to produce a good or service more efficiently than its competitors.

Comparative Advantage

An economic theory that describes how countries or individuals can gain by specializing in the production of goods and services for which they have a lower opportunity cost, leading to beneficial trade.

Absolute Advantage

The ability of a country or entity to produce a good more efficiently (using fewer resources) than another country or entity.

Specializing

The process of focusing on and becoming expert in a particular subject or skill.