For a Bank with a Positive Duration Gap,an Increase in Interest

question 48

Multiple Choice

For a bank with a positive duration gap,an increase in interest rates will

• A)increase the likelihood of insolvency.
• B)decrease the likelihood of insolvency.
• C)not affect the likelihood of insolvency.
• D)result in increased loan trading.
• E)None of the options are correct.

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Definitions:

Variance

A statistical measure that represents the degree of spread or dispersion of a set of values from their mean.

Probability

The quantification of the probability that an event will happen, represented as a number ranging from 0 to 1.

Crashing

A project management technique used to reduce the time for project completion through the increase of resources on critical tasks.

CPM Network

Critical Path Method Network; a project management tool that outlines every task necessary to complete a project and the relationships between those tasks, helping identify the longest stretch of dependent activities and the time necessary to complete them.