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Which of the following statements is INCORRECT? A. The fact that the capital gain effect for rate decreases is greater than the capital loss effect
Which of the following statements is INCORRECT? A. The fact that the capital gain effect for rate decreases is greater than the capital loss effect for rate increases is caused by convexity in the yield-price relationship. B. The ability of diversification to eliminate much of the risk from the asset side of the balance sheet of an FI is the result of choosing liabilities that are less than perfectly positively correlated. C. One reason to include demand deposits when estimating a bank's repricing gap is because rising interest rates could lead to high withdrawals from these accounts. D. Because the repricing model ignores the market value effect of changing interest rates, the repricing gap is an incomplete measure of the true interest rate risk exposure of an FI. E. The spread effect is such that, regardless of the direction of a change in market interest rates, a positive relation exists between the changes in spread and changes in net interest income
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