If the duration gap is zero, how will a small parallel shift in interest rates affect the market value of the bank's equity?
A) If interest rates rise, the market value of equity will increase
B) If interest rates rise, the market value of equity will decrease
C) The bank is immunised from changes in interest rates.
D) The market value of equity will decrease due to an increase in interest rates

Question

Quizplus · Accepted Answer

A duration gap of zero means that the bank's assets and liabilities have the same maturity, and hence, changes in interest rates will have an equal impact on both sides. Therefore, the market value of equity will remain unaffected as the bank is immunised from changes in interest rates.

If the Duration Gap Is Zero, How Will a Small