Final answer:
The bank's exposure to interest rate risk is measured by the duration measurement and gap ratio. Duration measurement assesses the sensitivity of the bank's assets and liabilities to interest rate changes, while the gap ratio compares amounts due for repricing. These measures help in assessing and managing the asset-liability time mismatch.
Step-by-step explanation:
The correct option to assess a bank's exposure to interest rate risk is d. duration measurement and gap ratio. These are the metrics used by financial institutions to manage and assess the risk arising from the difference in the maturity of their assets and liabilities - a concept known as asset-liability time mismatch. The duration measurement considers the sensitivity of the bank's assets and liabilities to changes in interest rates, taking into account the time frame over which customers repay loans or can withdraw deposits. The gap ratio compares the amounts of assets and liabilities that mature or can be repriced within a certain time frame.
The money listed under assets on a bank's balance sheet may not be in the bank because banks operate on the principle of fractional reserve banking, which means they lend out the majority of deposits they receive. As for the secondary market, the value of a loan would vary based on the borrower's reliability, economic interest rates, and the financial health of the borrowing entity. For instance, late payments by the borrower would decrease the value of the loan, while an increase in market interest rates would also make a pre-existing loan less attractive, as new loans are issued at higher rates. Conversely, if interest rates fall or if the borrower declares high profits, thereby reducing the risk, the loan becomes more valuable.