1) If interest rates in the future are expected to decline,

A) a negative GAP is desirable. The bank: would want to lock in current low rates of interest on assets and let its cost of funds to increase.

B) a positive GAP is desirable. The bank: would want to lock in current lows rates of interest on assets and let its cost of funds to increase

C) a positive GAP is desirable. The bank would want to lock in current high rates of interest on assets and let its cost of funds to decline.

D) a negative GAP is desirable. The bank would want to lock in current high rates of interest on assets and let its cost of funds to docline.

2) If the asset duration is less than the weighted duration of the liabilities, then falling interest rates will cause the market value of equity

a) to rise above book value

b) to drop

C) to be unaffected

D) to rise