The measure of interest rate risk that uses the difference between rate-sensitive assets and rate-sensitive liabilities is called
A) gap measurement.
B) duration measurement.
C) duration ratio.
D) gap ratio.

Question

Quizplus · Accepted Answer

Gap measurement calculates the difference between rate-sensitive assets and rate-sensitive liabilities, which indicates the level of interest rate risk that a financial institution faces. Gap measurement is a commonly used method of measuring interest rate risk. Choice B, duration measurement, is a method of measuring the sensitivity of the value of the financial instrument to changes in interest rates. Choice C, duration ratio, is a financial ratio that divides the duration of a financial instrument by the duration of its benchmark index. Choice D, gap ratio, is not a commonly used term in interest rate risk measurement.

The Measure of Interest Rate Risk That Uses the Difference