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CMA Final · Risk Management in Banking and Insurance · Interest Rate Risk Management

A bank has assets of ₹2,000 crore with duration of 3.0 years and liabilities of ₹1,800 crore with duration of 2.0 years. Using the duration gap approach, the duration gap is:

The duration gap is 1.2 years, calculated as asset duration of 3.0 minus the liability-to-asset ratio of 0.9 multiplied by liability duration of 2.0. This question's options do not include that value.

  1. A2.20 yearsCorrect
  2. B1.00 years
  3. C0.60 years
  4. D3.40 years

Explanation

Duration gap = DA - (L/A) x DL = 3.0 - (1,800/2,000) x 2.0 = 3.0 - 0.9 x 2.0 = 3.0 - 1.8 = 1.2 years. Check against the options: 1.2 is not listed, so recompute: 0.9 x 2.0 = 1.8, and 3.0 - 1.8 = 1.2. None matches 2.20, so the key is invalid.

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