Final answer:
If a financial institution's leverage-adjusted duration gap is positive, it will gain if interest rates rise.
Step-by-step explanation:
If a financial institution's leverage-adjusted duration gap is positive, it means that the institution's assets will be more sensitive to changes in interest rates than its liabilities. This indicates that the institution is more exposed to interest rate risk. Therefore, if interest rates rise, the value of the institution's assets will decrease more than the value of its liabilities, resulting in a gain for the institution.
For example, let's say a bank has a positive leverage-adjusted duration gap. If interest rates rise, the value of the loans held by the bank will decrease because their interest rates are fixed. However, the bank's liabilities, such as deposits, may have lower interest rates or be more flexible, causing their value to decrease less. As a result, the bank will gain.
In conclusion, the statement is True - if a financial institution's leverage-adjusted duration gap is positive, it will gain if interest rates rise.