What does a bank's duration gap measure?
A) The duration of short-term buckets minus the duration of long-term buckets.
B) The duration of the bank's assets minus the duration of its liabilities.
C) The duration of all rate-sensitive assets minus the duration of rate-sensitive liabilities.
D) The duration of the bank's liabilities minus the duration of its assets.
E) The duration of all rate-sensitive liabilities minus the duration of rate-sensitive assets.

Question

Quizplus · Accepted Answer

The duration gap measures the difference in the duration of a bank's assets and its liabilities. A positive duration gap indicates that the bank's assets have a longer duration than its liabilities, making the bank more sensitive to interest rate increases, and vice versa.

What Does a Bank's Duration Gap Measure