For a Bank That Has a Negative Duration Gap, a Decrease

question 35

Multiple Choice

For a bank that has a negative duration gap, a decrease in interest rates will cause a(n) _______ in the economic value of assets that is _______ than the _______ in the economic value of liabilities, and a(n) _______ in the economic value of equity.

• A) increase, less, increase, decrease
• B) increase, greater, increase, decrease
• C) increase, less, decrease, increase
• D) decrease, less, decrease, increase
• E) decrease, greater, decrease, decrease

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Definitions:

Interest Revenue

Income earned on investments, loans, and other interest-bearing financial instruments, recorded as revenue in the income statement.

Debt Trading Securities

Financial instruments that involve debt and are actively bought and sold on markets with the aim to profit from price movements.

Net Income

The total profit of a company after all revenues, costs, and expenses have been deducted, also known as net earnings.

Unrealized Holding Loss

An unrealized holding loss occurs when an investment's value decreases, but the investment has not yet been sold by the holder.