The leverage adjusted duration gap measures:
A)the change in an FI's net worth if interest rates change
B)the degree of duration mismatch in an FI's profit and loss statement
C)the degree of duration mismatch in an FI's balance sheet
D)All of the listed options are correct.

Question

Quizplus · Accepted Answer

The leverage adjusted duration gap is a measure of the sensitivity of an FI's net worth to changes in interest rates due to the mismatch in the duration of assets and liabilities on the balance sheet. Therefore, the correct answer is C - the degree of duration mismatch in an FI's balance sheet. Option A is incorrect as it only measures the change in net worth, without considering the impact of interest rate changes. Option B is incorrect as it refers to the profit and loss statement, rather than the balance sheet. Option D is incorrect as only option C is correct.

The Leverage Adjusted Duration Gap Measures