Impact of Rate Changes on Economic Value of Equity

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Impact of Rate Changes on Economic Value of Equity - Article

This article explains how interest-rate changes affect the Economic Value of Equity under the Duration Gap Approach. It covers asset and liability value sensitivity, Modified Duration Gap, positive and negative rate shocks, change in Market Value of Equity, percentage erosion of net worth, RBI’s 200-basis-point supervisory test and common CAIIB numerical traps involving signs and basis-point conversion.

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