Question 1

If interest rates decrease 50 basis points for an FI that has a gap of +$5 million,the expected change in net interest income is

Accepted Answer

A) +$2,500. 
B) +$25,000. 
C) +$250,000. 
D) -$250,000. 
E) -$25,000. 
A) +$2,500. 
B) +$25,000. 
C) +$250,000. 
D) -$250,000. 
E) -$25,000.

Question 2

The balance sheet of XYZ Bank appears below. All figures in millions of U.S. dollars. 
  
-Total one-year rate-sensitive liabilities is

Accepted Answer

A) $540 million. 
B) $580 million. 
C) $555 million. 
D) $415 million. 
A) $540 million. 
B) $580 million. 
C) $555 million. 
D) $415 million.

Question 3

A positive gap implies that an increase in interest rates will cause _______ in net interest income.

Accepted Answer

A) no change 
B) a decrease 
C) an increase 
D) an unpredictable change 
A) no change 
B) a decrease 
C) an increase 
D) an unpredictable change

Question 4

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 365 days.

Accepted Answer

A) +$15 million. 
B) -$20 million. 
C) -$350 million. 
D) -$450 million. 
A) +$15 million. 
B) -$20 million. 
C) -$350 million. 
D) -$450 million.

Question 5

What is the change in the value of its liabilities if all interest rates decrease by 1 percent?

Accepted Answer

A) Approximately $2.003 million. 
B) Approximately -$2.355 million. 
C) Approximately $2.697 million. 
D) Approximately $2.906 million. 
A) Approximately $2.003 million. 
B) Approximately -$2.355 million. 
C) Approximately $2.697 million. 
D) Approximately $2.906 million.

Question 6

A bank with a negative repricing (or funding)gap faces refinancing risk.

Accepted Answer

A) True 
 B)False

Question 7

One reason to include demand deposits when estimating a bank's repricing gap is because rising interest rates could lead to high withdrawals from these accounts.

Accepted Answer

A) True 
 B)False

Question 8

An FI finances a $250,000 2-year fixed-rate loan with a $200,000 1-year fixed-rate CD.Use the repricing model to determine (a)the FI's repricing (or funding)gap using a 1-year maturity bucket,and (b)the impact of a 100 basis point (0.01)decrease in interest rates on the FI's annual net interest income?

Accepted Answer

A) $0;$0. 
B) -$200,000;+$2,000. 
C) -$200,000;-$2,000. 
D) +$50,000;-$500. 
A) $0;$0. 
B) -$200,000;+$2,000. 
C) -$200,000;-$2,000. 
D) +$50,000;-$500.

Question 9

If interest rates increase 75 basis points for an FI that has a gap of -$15 million,the expected change in net interest income is

Accepted Answer

A) -$112,500. 
B) +$112,500. 
C) +$1,125,0000. 
D) -$1,125,0000. 
A) -$112,500. 
B) +$112,500. 
C) +$1,125,0000. 
D) -$1,125,0000.

Question 10

The repricing model ignores market value effects of interest rate changes.

Accepted Answer

A) True 
 B)False

Question 11

Hadbucks National Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually.
 
-What is market value of the one-year CD if all market interest rates increase by 2 percent?

Accepted Answer

A) $49.065 million. 
B) $50.481 million. 
C) $49.528 million. 
D) $50.971 million. 
A) $49.065 million. 
B) $50.481 million. 
C) $49.528 million. 
D) $50.971 million.

Question 12

The repricing gap does not accurately measure FI interest rate risk exposure because

Accepted Answer

A) FIs cannot accurately predict the magnitude change in future interest rates. 
B) FIs cannot accurately predict the direction of change in future interest rates. 
C) accounting systems are not accurate enough to allow the calculation of precise gap measures. 
D) it does not recognize timing differences in cash flows within the same maturity grouping. 
A) FIs cannot accurately predict the magnitude change in future interest rates. 
B) FIs cannot accurately predict the direction of change in future interest rates. 
C) accounting systems are not accurate enough to allow the calculation of precise gap measures. 
D) it does not recognize timing differences in cash flows within the same maturity grouping.

Question 13

The maturity of a portfolio of assets or liabilities is a weighted average of the maturities of the assets or liabilities that comprise that portfolio.

Accepted Answer

A) True 
 B)False

Question 14

If interest rates decrease 40 basis points (0.40 percent)for an FI that has a cumulative gap of -$25 million,the expected change in net interest income is

Accepted Answer

A) +$100,000. 
B) -$100,000. 
C) -$625,000. 
D) -$250,000. 
A) +$100,000. 
B) -$100,000. 
C) -$625,000. 
D) -$250,000.

Question 15

A bank that finances long-term fixed-rate mortgages with short-term deposits is exposed to

Accepted Answer

A) increases in net interest income and decreases in the market value of equity when interest rates fall. 
B) decreases in net interest income and decreases in the market value of equity when interest rates fall. 
C) decreases in net interest income and increases in the market value of equity when interest rates increase. 
D) increases in net interest income and increases in the market value of equity when interest rates increase. 
E) decreases in net interest income and decreases in the market value of equity when interest rates increase. 
A) increases in net interest income and decreases in the market value of equity when interest rates fall. 
B) decreases in net interest income and decreases in the market value of equity when interest rates fall. 
C) decreases in net interest income and increases in the market value of equity when interest rates increase. 
D) increases in net interest income and increases in the market value of equity when interest rates increase. 
E) decreases in net interest income and decreases in the market value of equity when interest rates increase.

Question 16

The gap ratio expresses the reprice gap for a given time period as a percentage of

Accepted Answer

A) equity. 
B) total liabilities. 
C) current liabilities. 
D) total assets. 
A) equity. 
B) total liabilities. 
C) current liabilities. 
D) total assets.

Question 17

Duration Bank has the following assets and liabilities as of year-end. All assets and liabilities are currently priced at par and pay interest annually.  
-What is the weighted average maturity of the assets of the FI?

Accepted Answer

A) 2.0 years. 
B) 2.3 years. 
C) 2.5 years. 
D) 2.6 years. 
A) 2.0 years. 
B) 2.3 years. 
C) 2.5 years. 
D) 2.6 years.

Question 18

What is the impact over the next 30 days on the dealer's net interest income if all interest rates increase by 50 basis points?

Accepted Answer

A) Net interest income will decrease by $50,000. 
B) Net interest income will decrease by $2.125 million. 
C) Net interest income will decrease by $475,000. 
D) Net interest income will decrease by $2.375 million. 
A) Net interest income will decrease by $50,000. 
B) Net interest income will decrease by $2.125 million. 
C) Net interest income will decrease by $475,000. 
D) Net interest income will decrease by $2.375 million.

Question 19

The average maturity of the liabilities of an FI's balance sheet is equal to

Accepted Answer

A) the weighted-average of the liabilities where the weights are determined relative to the total liabilities and equity of the FI. 
B) the weighted-average of the liabilities where the weights are determined relative to the total liabilities of the FI. 
C) the weighted-average of the liabilities where the weights are determined relative to the total assets of the FI. 
D) the weighted-average of the liabilities where the weights are determined using market values of liabilities. 
A) the weighted-average of the liabilities where the weights are determined relative to the total liabilities and equity of the FI. 
B) the weighted-average of the liabilities where the weights are determined relative to the total liabilities of the FI. 
C) the weighted-average of the liabilities where the weights are determined relative to the total assets of the FI. 
D) the weighted-average of the liabilities where the weights are determined using market values of liabilities.

Question 20

The term structure of interest rates assumes that

Accepted Answer

A) the risk of all assets is the same. 
B) the time to maturity for all assets is the same. 
C) the coupon rate of all assets is the same. 
D) the market value of assets is the same. 
A) the risk of all assets is the same. 
B) the time to maturity for all assets is the same. 
C) the coupon rate of all assets is the same. 
D) the market value of assets is the same.

Exam 8: Interest Rate Risk I

If interest rates decrease 50 basis points for an FI that has a gap of +$5 million,the expected change in net interest income is

The balance sheet of XYZ Bank appears below. All figures in millions of U.S. dollars. -Total one-year rate-sensitive liabilities is

A positive gap implies that an increase in interest rates will cause _______ in net interest income.

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 365 days.

What is the change in the value of its liabilities if all interest rates decrease by 1 percent?

A bank with a negative repricing (or funding)gap faces refinancing risk.

One reason to include demand deposits when estimating a bank's repricing gap is because rising interest rates could lead to high withdrawals from these accounts.

If interest rates increase 75 basis points for an FI that has a gap of -$15 million,the expected change in net interest income is

The repricing model ignores market value effects of interest rate changes.

Hadbucks National Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually. -What is market value of the one-year CD if all market interest rates increase by 2 percent?

The repricing gap does not accurately measure FI interest rate risk exposure because

The maturity of a portfolio of assets or liabilities is a weighted average of the maturities of the assets or liabilities that comprise that portfolio.

If interest rates decrease 40 basis points (0.40 percent)for an FI that has a cumulative gap of -$25 million,the expected change in net interest income is

A bank that finances long-term fixed-rate mortgages with short-term deposits is exposed to

The gap ratio expresses the reprice gap for a given time period as a percentage of

Duration Bank has the following assets and liabilities as of year-end. All assets and liabilities are currently priced at par and pay interest annually. -What is the weighted average maturity of the assets of the FI?

What is the impact over the next 30 days on the dealer's net interest income if all interest rates increase by 50 basis points?

The average maturity of the liabilities of an FI's balance sheet is equal to

The term structure of interest rates assumes that

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Firms and Investment Banks

Financial Services: Mutual Fund and Hedge Fund Companies

Financial Services: Insurance Companies

Risks of Financial Institutions

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters