The Structure of a Bank's Balance Sheet as Evidenced by Its

question 20

Multiple Choice

The structure of a bank's balance sheet as evidenced by its repricing gap and its duration gap affects a bank's sensitivity to interest rate changes. Which one of the following statements about the two types of gaps is true?

• A)The repricing gap immunizes the present value of all future cash flows,whereas managing the duration gap can stabilize future cash flows,but not their present value.
• B)The duration gap considers all cash flows up to and including maturity,whereas the repricing gap really only considers how cash flows will change within the maturity bucket.
• C)If a bank could only manage one type of gap,the bank would limit its interest rate risk the most by managing its repricing gap instead of its duration gap.
• D)The repricing gap is superior to the duration gap since the repricing gap has a well-defined maturity bucket.
• E)It is virtually impossible for an institution to have both a positive duration gap and a negative repricing gap at the same time.

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Definitions:

Critical Thinking

involves the objective analysis and evaluation of an issue in order to form a judgment.

Defensible

Defensible refers to something that can be supported or maintained with evidence, making it justifiable in the face of scrutiny or challenge.

Scientific Reasoning

Refers to the methodological approach of using empirical data, observations, and experiments to form hypotheses and conclusions.

Problem Identification

The process of recognizing and defining an issue or challenge that requires resolution.