What would be the strategy for a bank if it is unable to speculate on interest rates and/or unable to absorb market risk?
A) to run a zero gap
B) to hold more interest rate sensitive assets than interest rate sensitive liabilities
C) to reduce the size of the balance sheet
D) to hold fewer interest rate sensitive assets than interest rate sensitive liabilities

Question

Quizplus · Accepted Answer

Running a zero gap refers to the bank's assets and liabilities being equal in terms of interest rate sensitivity. This means that the bank's net interest revenue would not be affected by changes in interest rates, and it would not be exposed to market risks.

What Would Be the Strategy for a Bank If It