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A bank has an average duration of its liabilities equal to 2 years. The bank's average duration of its assets is 3.5 years. The bank's market value of equity is at risk if _______________________. interest rates fall credit spreads fall interest rates rise the price of all fixed-income securities rises

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Answer:

The bank's market value of equity is at risk if interest rates rise

Explanation:

If the duration of liabilities is larger than the assets, it is called as negative gap. If the interest rates rises, liabilities would be repriced at higher interest rates, and income would decrease. This results in the fall in the market value of the equity.

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