In order to achieve a positive leverage adjusted duration gap (DA-kDL>0) , a financial institution with zero leverage adjusted duration gap can reduce the duration of liability portfolio by Selling long term bonds in the asset portfolio, replace them with short term bonds Issuing long term bonds, use the funds to buy short term assets Selling short term bonds in the asset portfolio, replace them with long term bonds Issuing short term bonds, use the funds to buyback its long term bonds
In order to achieve a positive leverage adjusted duration gap (DA-kDL>0) , a financial institution with zero leverage adjusted duration gap can reduce the duration of liability portfolio by Selling long term bonds in the asset portfolio, replace them with short term bonds Issuing long term bonds, use the funds to buy short term assets Selling short term bonds in the asset portfolio, replace them with long term bonds Issuing short term bonds, use the funds to buyback its long term bonds
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 10QTD
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In order to achieve a positive leverage adjusted duration gap (DA-kDL>0) , a financial institution with zero leverage adjusted duration gap can reduce the duration of liability portfolio by
Selling long term bonds in the asset portfolio, replace them with short term bonds
Issuing long term bonds, use the funds to buy short term assets
Selling short term bonds in the asset portfolio, replace them with long term bonds
Issuing short term bonds, use the funds to buyback its long term bonds
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