1. In 150 to 200 words Discuss how market interest rates are affected by borrowers’ need for capital, expected inflation, different securities’ risks, and securities’ liquidity.
2. An FI has financial assets of $800 and equity of $75. If the duration of assets is 1.27 years and the duration of all liabilities is 0.63 years, what is the leverage-adjusted duration gap? To solve this problem, use duration values without converting to modified duration.
0.8432 years.
0.6632 years.
0.6991 years.
0.8844 years.
Cannot be determined.