A Bank Has a Negative Duration Gap

question 13

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 move 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:

Vendor-Managed Inventory

Vendor-Managed Inventory is a supply chain initiative where the supplier assumes the responsibility for managing their products' inventory levels at the customer's premises.

Transportation Costs

Expenses incurred by a company in moving its goods from place to place, including expenses like fuel, labor, and maintenance.

Facility Consideration

Factors that are taken into account when selecting or designing a physical location for operations.