How Can a Negative Duration Gap of 0

question 30

Multiple Choice

How can a negative duration gap of 0.21 years be interpreted?

• A)The FI is exposed to decreasing interest rates because it has a negative duration gap of 0.21 years.
• B)The FI is exposed to increasing interest rates because it has a negative duration gap of 0.21 years.
• C)The FI is not exposed to interest rate changes since it is running a matched book.
• D)The FI's exposure will depend on its maturity gap.

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Definitions:

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, which often leads to a reduction in average cost per unit as scale is increased.

Economies of Scope

Cost advantages that a business experiences by expanding the variety of products or services it offers, leveraging shared operations or resources.

Learning Curve

The graphical representation of how an increase in learning comes from greater experience, leading to reduced costs over time.

Average Cost Curve

A graphical representation that shows how the average cost of producing a good varies with the quantity produced, usually U-shaped due to economies and diseconomies of scale.