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    Question

    In credit risk management, a duration limit is

    established to:
    A Restrict banks from offering long-term loans Correct Answer Incorrect Answer
    B Control excessive volatility in interest rate-sensitive assets Correct Answer Incorrect Answer
    C Define the maximum repayment period for retail loans Correct Answer Incorrect Answer
    D Set a cap on the total exposure to credit risk in a sector Correct Answer Incorrect Answer
    E Ensure a company’s cash flows match its loan repayment schedule Correct Answer Incorrect Answer

    Solution

    Duration limits help control interest rate sensitivity by capping the weighted average maturity of portfolios, minimizing volatility and risk.

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