Exam 8: Interest Rate Risk I

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.

Defining buckets of time over a range of maturities assures the capture of all relevant information necessary to accurately assess the interest rate risk exposure of an FI.

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

One reason to exclude NOW accounts when estimating a bank's repricing gap is because the interest rates paid on these accounts typically do not change with the level of market rates.

Runoff in demand deposits in a repricing model is typically lower during periods of falling interest rates.

The Bank for International Settlements (BISs)requires depository institutions to have interest rate risk management systems.

The liquidity premium theory of the term structure of interest rates

The repricing model measures the impact of unanticipated changes in interest rates on

To be more precise in measuring interest rate risk,the runoff component of long-term mortgages should be considered in the time buckets in which the maturities actually occur.

Which theory of term structure states that long-term rates are equal to the geometric average of current and expected short-term rates plus a risk premium that increases with the maturity of the security?

An interest rate increase

Which of the following indicates a positive gap according to the repricing model?

An increase in interest rates

Changes in short term interest rates rarely affect the entire term structure of interest rates.

Retail passbook savings accounts are included as part of rate-sensitive liabilities because the rates on these accounts rarely change.

Because of its complexity,small depository institutions rarely use the repricing,or funding gap,model.

The following are the assets and liabilities of a government security dealer. -Use the repricing model to determine the funding gap for a maturity bucket of 30 days.

The following is the balance sheet of Boston Bank. The average maturity of demand deposits is estimated at 2 years. -What is the repricing gap if a 1-year maturity gap is used if runoffs are also considered?

If the average maturity of assets is 4 years and the average maturity of liabilities is 4 years,then the FI has no interest rate risk exposure.

The following information is from First Yaupon Savings Association. -If all interest rates decrease by 15 basis points,what is the expected impact on the FI's net interest income? (Hint: Use the repricing model to answer this question. )