Professional Documents
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Group “A”
Very Short Answer Questions: [ 5× 1 =5]
Indicate whether the statements are “True” or “False”. Support your answers with reason.
1. Front office is responsible for verification and settlement of the deals conducted by the dealers.
2. If the interest rates fall, banks with negative duration gap will be adversely affected.
3. FI would want its funding gap to be positive when interest rates are expected to fall.
4. The purpose of interbank borrowing is to meet long term fund needs.
5. Purchased liquidity and storing liquidity are equally risky.
9. Changes in interest rate affect the bank’s earnings as well as value of assets and liabilities. This is the
reason that management of interest rate risk is one of the challenging jobs in the banking sector. You as
a student of finance specialization, explain how duration gap and funding gap are used to manage
interest rate risk along with their shortcomings.
10. Investment is regarded as crossroad accounts on a bank`s balance sheet. Do you agree? Support your
answer with reason along with rationale behind the investment portfolio.