Bank PLL applies multiple approaches to managing interest rate risk in order toprotect and maximize its value and interest margin, A junior risk analyst in thebank's treasury department is studying the mechanies of two of these approaches.duration gap management and interest-sensitive gap management, and wants tounderstand the shortcomings associated with their application, Which of thefollowing statements correctly describes a limitation of the given approach?
A. Applying duration gap management may lower the volatility of the bank's netinterest margin, but at the cost of decreasing the market value of the bank'snet worth.
B. Applying interest-sensitive gap management may raise the bank's netearnings, but at the cost ofincreasing the volatility of the bank's interestmargin.
C.A drawback of duration gap management is that, since durations of differentfinancial instruments tend to change at the same speed, a leverage-adjustedduration gap is created and persists over time.
D A drawback ofinterest-sensitive gap management is that differences ininterest-sensitive assets and liabilities may produce a weighted balance sheetwith a misleading interest rate gap.
