9-59 Immunizing the balance sheet to protect equity holders from the effects of interest rate risk occurs when

Question

Quizplus · Accepted Answer

Immunization occurs when the effect of a change in interest rates on the value of the assets of the FI is exactly offset by the effect of the same change in interest rates on the liabilities of the FI, ensuring that the value of equity is protected. This is referred to as immunizing the balance sheet. A zero maturity gap, repricing gap, or duration gap alone does not necessarily ensure immunization. An after-the-fact analysis demonstrating that immunization coincidentally occurred is not sufficient, as the objective of immunization is to proactively protect equity holders from interest rate risk.

9-59 Immunizing the Balance Sheet to Protect Equity Holders from the Effects