Bank's Asset Liability Duration
A question from Q-bank:
A commercial bank takes in short-term deposits and uses those funds to make longer term loans. As such, the duration of the bank's assets tends to be longer than the duration of the bank's liabilities. What will happen when interest rates?
a) assets will decrease in value by more than the bank's liabilities causing the bank's equity (surplus) to decrease
b) liabilities will decrease in value by more than the bank's assets causing the bank's equity (surplus) to increase
c) assets will increase in value by more than the bank's liabilities causing the bank's equity (surplus) to decrease.
The correct answer is A.
Can anyone provide an explanation and how to go about thinking through this problem? |
发表于 2011-7-11 19:13
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