Impact of increase in duration gap and interest rate risk relationship
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The duration gap is a financial and accounting term and is typically used by banks, pension funds, or other financial institutions to measure their risk due to changes in the interest rate. ... If interest rates rise, liabilities will lose more value than assets, thus increasing the value of the firm's equity.
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A positive duration gap means that the market value of equity will fall when interest rates rise (this corresponds to a refinance position).
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