 firms can also hatch their interest rates risk to matching their liabilities with the corresponding assets. How firms can do this activity? Let's see an example. We have a market based balance sheet of a bank who has assets of worth 1000 million dollars and liabilities worth 900 million dollars. So the market value of equity of this bank is 100 million dollars. Now we see that there is a zero duration on overnight money on the asset site and checking and saving accounts on the liabilities side of the bank. Both have zero duration because the interest rate paid interest paid on these two types of instruments adjust immediately to changing interest rates in the economy. Now banks management is worrying on the interest rates because they are unknown about the movement of directions of the movement in the interest rates. So they think that bank is vulnerable to the changing interest rates in the economy. Now they have got a consultant opinion on hedging. The consultant head, this consultant has determined duration of this bank in terms of his assets and its liabilities. And both these two items have equal duration of 2.56 years. So according to the consultant's opinion, the bank is immune to the interest rate risk because the duration of bank's assets is equal to the duration of the bank's liabilities. But banks management is not satisfied with this particular computation and the opinion set by the consultant. So they have sought and other consultants on this issue. Now the second consultant has some different opinion. This consultant says that the duration of 2.56 years is incorrect because the bank's assets are more than its liabilities. This means that as long as the bank's assets are greater than the bank's liabilities, so the price movement, price changes in the assets should also be higher than the price changes in the liabilities. But for the interest rate risk immunity, the duration of assets should be equal to the duration of liabilities. So according to the opinion of this second consultant, to be immunized against the risk of interest rate movements, some model should be there as a truth. This means that the duration of assets in terms of its market value should be equal to the duration of liabilities with reference to the market value of the liabilities. Now he has an advice for the bank that don't equate the duration of liabilities with the duration of assets, rather it is better to match the duration of liabilities to the duration of assets. He has suggested two ways to achieve this target. The first is to increase the duration of liabilities without changing the duration of assets or the second is decrease the duration of assets without changing the duration of liabilities. Now how this can happen? The first case is that the increase of duration of liabilities without changing the duration of assets. According to this second consultant, the bank should increase the duration of liabilities to 2.84 years. In this way the bank can be immunized if the duration of assets with reference to the duration of liabilities in terms of 2.56 into 1 million dollars should be equal to the duration of liabilities with reference to the market value of the liabilities. Now the duration of liabilities is 2.84. If we multiply this duration with the market value of the liabilities, then the both of the sides of the balance sheet will be having equal amount of duration. The second suggestion of the consultant is to decrease the duration of assets without changing the duration of liabilities. And according to the opinion in this regard, the bank should try to decrease the duration of liabilities to 2. sorry the bank should decrease the duration of the assets to 2.23 years. In this way the duration of the assets of the bank will be equal to the duration of the liabilities of the bank and both will be matching with each other. But there is a question that if there is any mismatch between the duration of assets and duration of liabilities, then any quicker change in the market interest rate will have slightly reduction in the amount of liabilities of the bank. But it may completely wipe out the equity of the bank in terms of its market value. So it may have directly a negative bearing on the market value of the bank's equity.