As per the __________________ strategy,financial-service managers set interest-sensitive gap as close to zero as possible to reduce the expected volatility of net interest income.
A)aggressive GAP management
B)defensive GAP management
C)cumulative GAP management
D)weighted GAP management
E)asset-sensitive GAP management

Question

Quizplus · Accepted Answer

Defensive GAP management involves setting the interest-sensitive gap as close to zero as possible to reduce the volatility of net interest income. This strategy is recommended for financial institutions that are risk-averse and prefer stability over high returns. Aggressive GAP management, on the other hand, involves taking a larger interest rate risk position to increase the potential for higher returns. Cumulative GAP management involves monitoring the cumulative effect of interest rate changes on net interest income over time, while weighted GAP management involves assigning different weights to different interest-sensitive assets and liabilities to manage interest rate risk. Asset-sensitive GAP management involves having an interest-sensitive gap that is positive, which means that an increase in interest rates would result in an increase in net interest income.

As Per the __________________ Strategy,financial-Service Managers Set Interest-Sensitive Gap as Close