Exam 8: Interest Rate Risk I

The following information is from First Yaupon Savings Association. Assets Par Amount Rate Liabilities Par Amount Rate 2-year commercial loans \6 00 million 10\% 1-year CDs \9 00 million 7\% 1-year Treasury bills \4 00 million Net Worth \1 00 million [Reference: 8-99] -What is the repricing gap over the 1-year maturity bucket?

For a given change in interest rates, fixed-rate assets with long-term maturities will have smaller changes in price than assets with shorter maturities.

When interest rates increase, banks are more likely to be forced to increase rate-sensitive liabilities to replace decreased balances in demand deposits and savings accounts.

Few DIs consider demand deposits to be "core" or long-term sources of funds.

The liquidity premium theory of the term structure of interest rates

What is the weighted average maturity of the liabilities of the FI?

The economic insolvency of many thrift institutions during the 1980s was due, at least in part, to unexpected increases in interest rates.

The risk that the returns on funds to be reinvested will fall below the cost of the funds is:

Which of the following describes the condition known as runoff in the repricing model approach to measuring interest rate risk of an FI?

If the chosen maturity buckets have a time period that is too long, the repricing model may produce inaccurate results because

What is the repricing gap if a 1-year maturity gap is used if runoffs are also considered?

When repricing all interest-sensitive assets and all interest-sensitive liabilities in a balance sheet, the cumulative gap will be

Of the following institutions, which will be subject to reinvestment risk within a particular reprice bucket?

What is the impact on the FI's equity of a 2 percent overall increase in market interest rates on all fixed-rate instruments?

A method of measuring the interest rate or gap exposure of an FI is

The repricing gap approach calculates the gaps in each maturity bucket by subtracting the

The following information details the current rate sensitivity report for Gotbucks Bank, Inc.($ million). [Reference: 8-93] -Calculate the funding gap for Gotbucks Bank using (a) a 30 day maturity period and (b) a 91 day maturity period?

All FIs tend to mismatch the maturities of their assets and liabilities to some extent.

Because of its simplicity, smaller depository institutions still use this model as their primary measure of interest rate risk.

The market value of a fixed-rate liability will increase as interest rates rise, although the market value of a fixed-rate asset will decrease as interest rates rise.