If the yield curve were upward sloping, the bank could accept some interest rate risk and earn a positive interest rate spread by using:
A) a negative duration gap
B) a positive duration gap
C) a zero duration gap
D) a zero dollar gap

Question

Quizplus · Accepted Answer

A positive duration gap means that the duration of assets is greater than the duration of liabilities. In an upward sloping yield curve environment, this allows banks to earn more on longer-term assets compared to what they pay on shorter-term liabilities, thus earning a positive interest rate spread.

If the Yield Curve Were Upward Sloping, the Bank Could