Consider a FI with a bond portfolio comprised of sovereign country debt that has both interest rate and exchange rate risk exposure.The duration of assets is 3.4 years and the duration of liabilities is 5.2 years.The portfolio has assets of US$18 billion (including 2.5 billion euro) and liabilities of US$16 billion (including 4.15 billion euro) with no other currencies bought or sold forward.

21. What is the interest rate risk of the bond portfolio?

a.The duration gap of-0.8 years implies an exposure to interest rate increases.

b.The duration gap of -0.8 years implies an exposure to interest rate decreases.

c.The duration gap of -1.2 years implies an exposure to interest rate increases.

d.The duration gap of -1.2 years implies an exposure to interest rate decreases.

e.The duration gap of +1.2 years implies an exposure to interest rate increases.