If the duration gap is negative, a fall in interest rates will result in a net capital gain on our position.

Name: If the duration gap is negative, a fall in interest rates will result in a net capital gain on our position.
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Quizplus · Accepted Answer

A negative duration gap indicates that the liabilities are more sensitive to interest rate changes than the assets. Therefore, a fall in interest rates would lead to a net capital loss, not a gain, as the value of liabilities would increase more than the value of assets.

If the Duration Gap Is Negative, a Fall in Interest