Which of the following statements is true?
A)The optimal duration gap is zero.
B)Duration gap measures the impact of changes in interest rates on the market value of equity.
C)The shorter the maturity of the FI's securities,the greater the FI's interest rate risk exposure.
D)The duration of all floating rate debt instruments is equal to the time to maturity.

Question

Quizplus · Accepted Answer

Duration gap measures the sensitivity of a FI's assets and liabilities to changes in interest rates. The optimal duration gap is not necessarily zero and varies depending on the FI's objectives and risk tolerance. The shorter the maturity of the FI's securities, the lower the interest rate risk exposure. The duration of floating rate debt instruments can vary depending on the frequency and terms of the rate resets. Statement B is true because duration gap measures the impact of interest rate changes on an FI's market value of equity.

Which of the Following Statements Is True