Financial institutions are interested in duration because
A)duration allows them to improve the management of assets while holding the liabilities constant
B)duration allows them to improve the management of liabilities while holding the assets constant
C)duration allows them to maximize their profits without changing their asset structure
D)duration can protect them against adverse movement in interest rates
E)duration can protect them against borrower's default

Question

Quizplus · Accepted Answer

Financial institutions are interested in duration because it can protect them against adverse movements in interest rates. Duration measures the sensitivity of a security or portfolio to changes in interest rates. By managing the duration of their assets and liabilities, financial institutions can protect themselves from interest rate risk.

Financial Institutions Are Interested in Duration Because