An FI with a positive duration gap is exposed to interest rate declines and could hedge its interest rate risk by buying forward contracts.

Name: An FI with a positive duration gap is exposed to interest rate declines and could hedge its interest rate risk by buying forward contracts.
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Question

Quizplus · Accepted Answer

A positive duration gap means the FI is more sensitive to interest rate increases, not declines. To hedge against interest rate increases, the FI would sell forward contracts, not buy them.

An FI with a Positive Duration Gap Is Exposed to Interest