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MANAGING INTEREST RATE RISK: DURATION GAP AND MARKET VALUE OF EQUITY - page 2 / 39

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Duration GAP …focus on managing NII or the market value of equity, recognizing the timing of cash flows.

Interest rate risk is measured by comparing the weighted average duration of assets with the weighted average duration of liabilities.

If Asset duration > Liability duration

interest ratesMarket value of equity will fall.

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