A Bank Has a Negative Duration Gap

question 39

Multiple Choice

A bank has a negative duration gap. Interest rates decline. Which one of the following best describes the effects of the interest rate change?

• A)The bank's market value of equity is unchanged since the market value of its assets and liabilities moves in the same direction.
• B)The bank's market value of equity goes up because the market value of its assets goes up by more than the market value of its liabilities goes down.
• C)The bank's market value of equity goes down because the market value of its assets goes up by more than the market value of its liabilities goes down.
• D)The bank's market value of equity goes down because the market value of its assets goes down by more than the market value of its liabilities goes down.
• E)The bank's market value of equity goes down because the market value of its liabilities increases by more than the market value of its assets increases.

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Definitions:

Conchae

Curved bony structures in the nasal cavity that help to filter, humidify, and warm inhaled air.

Nasal Cavity

A large air-filled space above and behind the nose in the middle of the face, involved in breathing and smelling.

Epithelium

Layers of cells covering the body surfaces, both internal and external, and forming glands.

Silicosis

A lung disease caused by inhaling fine particles of silica, most commonly in the mining industry, leading to inflammation and scarring in the lungs.