Exam 19: Bank Management

If interest rates ____, banks with ____ duration gaps will be ____ affected.

Floating-rate loans cannot completely eliminate interest rate risk; if the cost of funds is changing more frequently than the rate on assets, the bank's net interest margin is still affected by interest rate fluctuations.

Other things being equal, assets with shorter maturities have ____ durations. Assets that generate more frequent coupon payments have ____ durations.

Which of the following statements is  NOT correct?

Durango Bank has $2 million in rate-sensitive liabilities and $3 million in rate-sensitive assets. Durango's gap is ____, and Durango is probably more concerned about a(n)____ in interest rates.

The Financial Reform Act of 2010 provides that if a bank suffers large losses because it took excessive risk, the Federal Reserve will appoint a new board of directors for the bank.

A bank can usually simultaneously maximize its return on assets and minimize credit risk.

Banks can increase their potential interest revenues by restructuring their asset portfolio to contain fewer ____ and more ____.

Ringo Bank has a profit after taxes of $3 million, total assets of $300 million, and shareholders' equity of $30 million. Ringo's return on equity (ROE)is ____ percent.

Macon Bank has interest revenues of $5 million, interest expenses of $4 million, and assets totaling $20 million. Macon Bank's net interest margin is

A positive gap (or gap ratio of more than 1.00)suggests that rate-sensitive liabilities exceed rate-sensitive assets.

Banks are more liquid as a result of securitization because it allows them to request repayment of the loan principal from the borrower upon demand.

If a bank desires to maximize its net interest margin, it would best achieve its goal by attempting to obtain most of its funds through ____ and use most of its funds for ____ (assuming that all loans will be repaid).

During a period of rising interest rates, a bank's net interest margin will likely decline if it has a large amount of

Whether a bank has a temporary or a permanent need for funds, the decision should be to borrow in the federal funds market.

When a bank makes an international loan containing a clause that allows repayment in a foreign currency, the bank is exposed to

In an interest rate swap, a bank whose liabilities are ____ rate sensitive than its assets can swap payments with a ____ interest rate in exchange for payments with a ____ interest rate.

During a period of ____ interest rates, a bank's net interest margin will likely ____ if its liabilities are more rate sensitive than its assets.

Each bank may have its own classification system of interest rate sensitivity, because there is no perfect measurement of the gap.

____ is not a method used to assess interest rate risk.