A Bank Has a Negative Duration Gap

question 55

Multiple Choice

A bank has a negative duration gap. Which one of the following statements is most correct?

• A)If all interest rates are projected to increase,to limit a net value decline before rates rise,the bank should increase the amount of short-term loans on the balance sheet.
• B)If all interest rates are projected to increase,to limit a net value decline before rates rise,the bank should increase the amount of short-term bonds issued by the bank.
• C)If all interest rates are projected to decrease,to limit a net value decline before rates fall,the bank should increase the amount of long-term loans on the balance sheet.
• D)If all interest rates are projected to decrease,to limit a net value decline before rates fall,the bank should increase the amount of long-term bonds issued by the bank.
• E)None of the options are correct.

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Definitions:

Inventory Levels

The quantity of goods or materials a company has available at any given time, crucial for meeting customer demand and optimizing production.

Variable Costing

An accounting method in which fixed manufacturing overhead costs are not allocated to products, affecting stock valuation and profitability reporting.

Manufactured Quantity

Manufactured quantity refers to the total number of units produced by a company during a specified period.

Absorption Costing

A financial recording technique that encompasses all production expenses, such as raw materials, direct labor, and variable as well as fixed overheads, into the pricing of a product.