Exam 8: Interest Rate Risk I

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 FI's maturity gap?

The balance sheet of ARGH Insurance shows the following fixed and rate-sensitive assets and liabilities. -What will be the FI's net interest income at year-end if interest rates do not change?

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

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

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

The balance sheet of ARGH Insurance shows the following fixed and rate-sensitive assets and liabilities. -Suppose short-term interest rates increase by 1 percent.Calculate the change in net interest income after the interest rate increase.

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 0 to 3 month maturity gap is used? Ignore runoffs.

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

Hadbucks National Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually. -What is this FI's maturity gap?

Can the FI immunize itself from interest rate risk exposure by setting the maturity gap equal to zero?

The gap ratio is useful because it indicates the scale of the interest rate exposure by dividing the gap by the asset size of the institution.

Overaggregation within maturity buckets using the repricing model causes inaccurate accounting of asset and liability cash flows and,ultimately,net interest income.

What does Gotbucks Bank's 91-day gap positions reveal about the bank management's interest rate forecasts and the bank's interest rate risk exposure?

The balance sheet of XYZ Bank appears below. All figures in millions of U.S. dollars. -The gap ratio is

If the average maturity of assets is 5 years and the average maturity of liabilities is 7 years,then the FI has no interest rate risk exposure.

When the Fed finds it necessary to slow economic activity,it allows interest rates to fall.

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

Is the bank exposed to interest rate increases or decreases and why?

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.

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