The larger the size of an FI,the larger the _________ from any given interest rate shock.
A)duration mismatch
B)immunization effect
C)net worth exposure
D)net interest income

Question

Quizplus · Accepted Answer

Net worth exposure refers to the potential impact of changes in interest rates on the overall value of an FI's assets and liabilities. As the size of an FI increases, so does the magnitude of this exposure, since larger FIs typically hold more assets and liabilities. This means that any given interest rate shock, such as an unexpected rise in rates, could have a larger impact on the value of the FI's assets and liabilities, and therefore on its net worth. The duration mismatch and immunization effect are also important factors affecting an FI's exposure to interest rate risk, but they are not directly related to the size of the FI. Net interest income, on the other hand, relates to the income generated from the FI's interest-earning assets and interest-bearing liabilities, and is not directly related to its exposure to interest rate risk.

The Larger the Size of an FI,the Larger the _________