Explanation:
Key rate exposures assume that rate changes affect adjacent rates but not distant rates. In a key rate framework:
The assumption that the 2-year rate will affect the 20-year rate is NOT part of the key rate framework. Key rate exposures assume that rate changes only affect nearby maturities, not distant ones.
Using key rates of 2-year, 5-year, 7-year, and 20-year exposures assumes all of the following except that the:
A
2-year rate will affect the 5-year rate
B
7-year rate will affect the 20-year rate
C
5-year rate will affect the 7-year rate
D
2-year rate will affect the 20-year rate
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