Which of the Following Is True Regarding Duration Gap Analysis

question 13

Multiple Choice

Which of the following is true regarding duration gap analysis?

• A) The magnitude of the duration gap is related to the amount of interest rate risk a bank is subject to.
• B) Management can adjust the duration gap to speculate on future interest rate changes.
• C) A positive duration gap means a bank's market value of equity will decrease with an increase in interest rates.
• D) All of the above are true.
• E) a. and c.

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Definitions:

Marginal Cost

The rise in overall expenses associated with the manufacturing of an extra unit of a good or service.

Average Cost

The total cost of production divided by the number of units produced, a measure of the cost per unit.

Cost Function

A mathematical model or formula used to express the total cost of production as a function of varying levels of output.

Production Function

A mathematical relationship expressing the maximum output that can be produced from a given set of inputs under certain technological constraints.