"A bank that expects interest rates to increase in the future will want to hold more rate$-$sensitive assets and fewer rate$-$sensitive liabilities."

Do you agree with this statement?

A$.$ Disagree. Rate$-$sensitive assets will increase in value thus holding more of them as assets, while reducing them as liabilities, will decrease bank profits.

B$.$ Agree. Rate$-$sensitive assets will increase in value thus holding more of them as assets, while reducing them as liabilities, will increase bank profits.

C$.$ Agree. Rate$-$sensitive assets will increase in value thus holding more of them as assets, while reducing them as liabilities, will decrease interest$-$rate risk

D$.$ Disagree. In any case, it is more profitable for banks to reduce the number of rate$-$sensitive assets and liabilities, and increase assets and liabilities with fixed interest.

"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$.$ Disagree. A fall in interest rates with a positive duration gap will decrease profits.

B$.$ Agree. A fall in interest rates with a positive duration gap will increase a bank's capital.

C$.$ Disagree. The bank does not care about the duration gap during interest movements.

D$.$ Agree. A fall in interest rates with a positive duration gap will increase the number of deposits.

$"$If a bank manager expects interest rates to fall in the future, he should increase the duration of his bank's liabilities."

Do you agree with this statement?

A$.$ Agree. The manager should increase the duration of his bank's liabilities.

B$.$ Disagree. Higher duration of its liabilities will reduce the value of the bank's capital.

C$.$ Disagree. The manager should not change the duration of his bank's liabilities.

D$.$ There is not enough information to evaluate the manager's actions.