Which of the following statements most appropriately responds to the critique that duration matching is costly and time consuming?
A)The critique is valid; however, the speed has been eased and transaction costs of balance sheet restructuring have been lowered due to growth of purchased funds, asset securitisation and loan sales markets.
B)The critique is valid and FIs should spend funds in order to develop more efficient interest rate risk management tools.
C)The critique is valid, particularly because it is not possible for managers to get the same results of direct duration matching by taking positions in derivatives markets.
D)None of the listed options are correct.

Question

Quizplus · Accepted Answer

Option A acknowledges the validity of the critique but offers alternative solutions to the problem of cost and time in implementing duration matching, namely the use of purchased funds, asset securitisation, and loan sales markets. It suggests that these alternatives have made the process of balance sheet restructuring and duration matching more efficient and cost-effective. Option B suggests that FIs should invest funds in developing more efficient interest rate risk management tools, without addressing the issue of cost and time in implementing duration matching. Option C dismisses the possibility of using derivative markets as an alternative to direct duration matching without addressing the original critique. Option D suggests that none of the options are correct, and therefore does not provide a solution.

Which of the Following Statements Most Appropriately Responds to the Critique