Question

PART A Answer ALL Questions on the Multiple Choice Answer Sheet worth 1 mark (To M 1. Which of the following statements about checking deposits is true? A. They are a liability for both households and banks. B. They are an asset for households but a liability for a bank. C. They are a liability for households but an asset for a bank. D. They are an asset for both households and banks 2. "A bank that expects interest rates to fall will want the duration of its assets to be greater than the duration of its liabilities - a positive duration gap." Do you agree with this statement? A. Agree. A fall in interest rates with a positive duration gap will increase the number of deposits Disagree. The bank does not care about the duration gap during interest rate movements. B. Agree A fall in interest rates with a positive duration gap will increase a bank's capital. Disagree. A fall in interest rates with a positive duration gap will decrease profits. D. 3. Banks have a matuity mismatch since A. some of their loans are short term while others are long term. B.ffthey borrow long term, but lend short term

Answer 1

Ans.1- (B)

Think of checking deposits as your saving account balance.Its an asset for you and a liability for bank.

Ans.2- (C)

It will want the duration of its assets(e.g. loans provided to banks-on which it will earn interest) to be greater than the duration of its liabilities(e.g.loan taken from central bank) ,a positive duration gap in order to increase its capital.

If you have any doubt,feel free to ask.