Which of the following statements is TRUE with regard to the following statement: Immunizing the balance sheet to protect equity holders from the effects of interest rate risk occurs when A.When the modified duration is equal to the dollar duration.B.the effect of a change in the level of 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.C.the maturity gap is zero, so that all assets have a matching-maturity liability.D.the modified duration gap of the balance sheet is zero.E.the repricing gap is zero, so that all assets have a matching liability that reprices at the same time.

Which of the following statements is TRUE?A.Duration is the weighted-average time to maturity on the loan using the present values of the cash flows as weights.B.An FI can immunize its portfolio by matching the maturity of its asset with its liabilities. C.The smaller the leverage-adjusted duration gap, the more exposed the FI is to interest rate shocks. D.The larger the numerical value of duration, the more sensitive is the price of that asset or liability to changes or shocks in interest rates.E.Setting the duration of the assets higher than the duration of the liabilities will exactly immunize the net worth of an FI from interest rate shocks.

Which of the following statements is TRUE?A.An FI is net long in foreign assets if it holds more foreign liabilities than foreign assets. B.Off-balance-sheet activities often affect the shape of a FIs current balance sheet through the creation of contingent claims. C.For an FI to exactly hedge the foreign investment risk, the foreign currency assets must equal the foreign currency liabilities. D.Technology risk is the uncertainty that economies of scale or scope will be realized from the investment in new technologies. E.To be immunized against foreign currency and foreign interest rate risk, an FI should match either the size or the maturities of its foreign assets and foreign liabilities.

Which of the following statements is FALSE?A.For a given maturity fixed-income asset, duration decreases as the market yield increases. B.Duration of a zero coupon bond is equal to the bond's maturity. C.Duration considers the timing of all the cash flows of an asset by summing the product of the cash flows and the time of occurrence. D.The economic meaning of duration is the interest elasticity of a financial asset’s price. E.Duration increases with the maturity of a fixed-income asset at a decreasing rate.

QUESTION 4Why does immunization against interest rate shocks using duration for fixed-income securities work?  A.It doesn’t work because perfect immunization is impossible to accomplish.B.Because the gains or losses on reinvested cash flows that result from an interest rate change are exactly offset by losses or gains from the security when it is sold.C.Because interest rate changes are relatively predictable.D.Because the fixed-income security gravitates toward its maturity value as it approaches its maximum duration.E.Because cash flows that result from the security are not reinvested so they are not affected by interest rate changes in the same way as the security’s gain or loss when it is sold.

The duration of an asset or a liability for which there are intervening cash flows between issue and maturityA.is smaller than the asset or the liability's maturityB.can be equal to or smaller than the asset or the liability's maturityC.equals the asset or the liability's maturityD.exceeds the asset or the liability's maturityE.can be equal to or greater than the asset or the liability's maturity