Question 1

The repricing model is a simplistic approach to focusing on the exposure of net interest income to changes in market levels of interest rates for given maturity periods.

Accepted Answer

A) True 
 B)False

Question 2

The following is the balance sheet of Boston Bank. The average maturity of demand deposits is estimated at 2 years.  
-What is the impact on net interest income in year two if interest rates increase by 50 basis points at the end of year one? Ignore runoffs.

Accepted Answer

A) +$0.210 million. 
B) +$0.300 million. 
C) -$0.300 million. 
D) -$0.210 million. 
A) +$0.210 million. 
B) +$0.300 million. 
C) -$0.300 million. 
D) -$0.210 million.

Question 3

The repricing gap model is a book value accounting based model.

Accepted Answer

A) True 
 B)False

Question 4

In the repricing gap model,assets or liabilities are rate-sensitive within a given time period if the dollar values of each are subject to receiving a different interest rate should market rates change.

Accepted Answer

A) True 
 B)False

Question 5

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 bond if all market interest rates increase by 2 percent?

Accepted Answer

A) $60.000 million. 
B) $60.566 million. 
C) $59.444 million. 
D) $58.899 million. 
A) $60.000 million. 
B) $60.566 million. 
C) $59.444 million. 
D) $58.899 million.

Question 6

For a given change in interest rates,the change in price for each additional year of maturity of a fixed-rate asset is smaller as the maturity increases.

Accepted Answer

A) True 
 B)False

Question 7

The repricing model estimates the difference between interest earned and interest paid during a given period of time.

Accepted Answer

A) True 
 B)False

Question 8

Can an FI immunize itself against interest rate risk exposure even though its maturity gap is not zero?

Accepted Answer

A) Yes,because with a maturity gap of zero the change in the market value of assets exactly offsets the change in the market value of liabilities. 
B) No,because with a maturity gap of zero the change in the market value of assets exactly offsets the change in the market value of liabilities. 
C) Yes,because the maturity model does not consider the timing of cash flows. 
D) No,because the timing of cash flows is relevant to immunization against interest rate risk exposure. 
A) Yes,because with a maturity gap of zero the change in the market value of assets exactly offsets the change in the market value of liabilities. 
B) No,because with a maturity gap of zero the change in the market value of assets exactly offsets the change in the market value of liabilities. 
C) Yes,because the maturity model does not consider the timing of cash flows. 
D) No,because the timing of cash flows is relevant to immunization against interest rate risk exposure.

Question 9

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

Accepted Answer

A) the duration model. 
B) the maturity model. 
C) the repricing model. 
D) the funding gap model. 
E) All of the options. 
A) the duration model. 
B) the maturity model. 
C) the repricing model. 
D) the funding gap model. 
E) All of the options.

Question 10

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

Accepted Answer

A) Approximately $1.613 million. 
B) Approximately $2.297 million. 
C) Approximately -$1.937 million. 
D) Approximately $2.209 million. 
A) Approximately $1.613 million. 
B) Approximately $2.297 million. 
C) Approximately -$1.937 million. 
D) Approximately $2.209 million.

Question 11

The maturity model of measuring interest rate risk was a first attempt to include the impact on profitability of interest rate changes.

Accepted Answer

A) True 
 B)False

Question 12

The repricing model ignores information regarding the distribution of assets and liabilities within maturity buckets.This limitation of the model refers to

Accepted Answer

A) market value effect. 
B) overaggregation. 
C) runoffs and pre-payments. 
D) OBS activities. 
A) market value effect. 
B) overaggregation. 
C) runoffs and pre-payments. 
D) OBS activities.

Question 13

The following information details the current rate sensitivity report for Gotbucks Bank, Inc. ($ million).
 
-How will a decrease of 25 basis points in all interest rates affect Gotbuck's net interest income over a planning period of 91 days?

Accepted Answer

A) +$0.1875 million. 
B) +$0.1250 million. 
C) -$0.1375 million. 
D) +$0.0625 million. 
A) +$0.1875 million. 
B) +$0.1250 million. 
C) -$0.1375 million. 
D) +$0.0625 million.

Question 14

The repricing model incorporates cash flow effects of off-balance sheet activities of DIs.

Accepted Answer

A) True 
 B)False

Question 15

The balance sheet of ARGH Insurance shows the following fixed and rate-sensitive assets and liabilities.  
-What is the repricing gap for the FI?

Accepted Answer

A) $0. 
B) $5,000,000. 
C) $9,800,000. 
D) -$5,000,000. 
A) $0. 
B) $5,000,000. 
C) $9,800,000. 
D) -$5,000,000.

Question 16

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

Accepted Answer

A) the market value of rate-sensitive liabilities is less than the market value of equity. 
B) the book value of rate-sensitive assets is greater than the book value of rate-sensitive liabilities. 
C) the market value of rate-sensitive assets is less than the market value of rate-sensitive liabilities. 
D) the book value of rate-sensitive liabilities is greater than the book value of rate-sensitive assets. 
A) the market value of rate-sensitive liabilities is less than the market value of equity. 
B) the book value of rate-sensitive assets is greater than the book value of rate-sensitive liabilities. 
C) the market value of rate-sensitive assets is less than the market value of rate-sensitive liabilities. 
D) the book value of rate-sensitive liabilities is greater than the book value of rate-sensitive assets.

Question 17

Which of the following relationships does NOT hold in the pricing of fixed-rate assets given changes in market rate?

Accepted Answer

A) A decrease in interest rates generally leads to an increase in the value of assets. 
B) Longer maturity assets have greater changes in price than shorter maturity assets for given changes in interest rates. 
C) The absolute change in price per unit of maturity time for given changes in interest rates decreases over time,although the relative changes actually increase. 
D) For a given percentage decrease in interest rates,assets will increase in price more than they will decrease in price for the same,but opposite increase in rates. 
A) A decrease in interest rates generally leads to an increase in the value of assets. 
B) Longer maturity assets have greater changes in price than shorter maturity assets for given changes in interest rates. 
C) The absolute change in price per unit of maturity time for given changes in interest rates decreases over time,although the relative changes actually increase. 
D) For a given percentage decrease in interest rates,assets will increase in price more than they will decrease in price for the same,but opposite increase in rates.

Question 18

Hadbucks National Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually.
 
-What is the weighted average maturity of liabilities?

Accepted Answer

A) 5.50 years. 
B) 6.40 years. 
C) 1.44 years. 
D) 1.30 years. 
A) 5.50 years. 
B) 6.40 years. 
C) 1.44 years. 
D) 1.30 years.

Question 19

The balance sheet of XYZ Bank appears below. All figures in millions of U.S. dollars. 
  
-The cumulative one-year repricing gap (CGAP)for the bank is

Accepted Answer

A) $25 million. 
B) $-140 million. 
C) $15 million. 
D) $-150 million. 
A) $25 million. 
B) $-140 million. 
C) $15 million. 
D) $-150 million.

Question 20

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 two-year CD if all market interest rates increase by 2 percent?

Accepted Answer

A) $40.381 million. 
B) $39.626 million. 
C) $40.000 million. 
D) $38.573 million. 
A) $40.381 million. 
B) $39.626 million. 
C) $40.000 million. 
D) $38.573 million.

Exam 8: Interest Rate Risk I

The repricing model is a simplistic approach to focusing on the exposure of net interest income to changes in market levels of interest rates for given maturity periods.

The following is the balance sheet of Boston Bank. The average maturity of demand deposits is estimated at 2 years. -What is the impact on net interest income in year two if interest rates increase by 50 basis points at the end of year one? Ignore runoffs.

The repricing gap model is a book value accounting based model.

In the repricing gap model,assets or liabilities are rate-sensitive within a given time period if the dollar values of each are subject to receiving a different interest rate should market rates change.

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 bond if all market interest rates increase by 2 percent?

For a given change in interest rates,the change in price for each additional year of maturity of a fixed-rate asset is smaller as the maturity increases.

The repricing model estimates the difference between interest earned and interest paid during a given period of time.

Can an FI immunize itself against interest rate risk exposure even though its maturity gap is not zero?

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

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

The maturity model of measuring interest rate risk was a first attempt to include the impact on profitability of interest rate changes.

The repricing model ignores information regarding the distribution of assets and liabilities within maturity buckets.This limitation of the model refers to

The following information details the current rate sensitivity report for Gotbucks Bank, Inc. ($ million). -How will a decrease of 25 basis points in all interest rates affect Gotbuck's net interest income over a planning period of 91 days?

The repricing model incorporates cash flow effects of off-balance sheet activities of DIs.

The balance sheet of ARGH Insurance shows the following fixed and rate-sensitive assets and liabilities. -What is the repricing gap for the FI?

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

Which of the following relationships does NOT hold in the pricing of fixed-rate assets given changes in market rate?

Hadbucks National Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually. -What is the weighted average maturity of liabilities?

The balance sheet of XYZ Bank appears below. All figures in millions of U.S. dollars. -The cumulative one-year repricing gap (CGAP)for the bank is

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 two-year CD if all market interest rates increase by 2 percent?

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