\[\begin{array} { | l | c | l | l | c | c | } \hline & \text { Face Value } & \begin{array} { l } \text { Runoff } \\ < \mathbf { 1 } \text { year } \end{array} & & \text { Face Value } & \begin{array} { c } \text { Runoff } \\ < \mathbf { 1 } \text { year } \end{array} \\ \hline \text { 3-mo. T-Bills } & \$ 60 \mathrm {~m} & & \text { Demand Dep. } & \$ 180 \mathrm {~m} & 10 \text { percent } \\ \hline \text { 2-yr Bonds } & \$ 60 \mathrm {~m} & 5 \text { percent } & \text { Equity } & \$ 20 \mathrm {~m} & \\ \hline \text { 5-yr Bonds } & \$ 80 \mathrm {~m} & 10 \text { percent } & & & \\ \hline \end{array}\] -What is the repricing gap if a 3-year maturity gap is used? Ignore runoffs.

A) $21 million. B) $44 million. C) -$80 million. D) -$60 million. E) -$120 million. A) $21 million. B) $44 million. C) -$80 million. D) -$60 million. E) -$120 million.

\[\begin{array} { | l | r | l | l | r | l | } \hline \text { Assets } & \begin{array} { l } \text { Amount } \\ \text { (\$ millions) } \end{array} & \begin{array} { l } \text { Annual } \\ \text { Rate } \end{array} & \text { Liabilities } & \begin{array} { l } \text { Amount } \\ \text { (\$ millions) } \end{array} & \begin{array} { l } \text { Annual } \\ \text { Rate } \end{array} \\ \hline \text { 1-year bonds } & \$ 60 & 7 \% & \text { 1-year CD } & \$ 50 & 5 \% \\ \hline \text { 10-year loan } & \$ 40 & 12 \% & \text { 2-year CD } & \$ 40 & 6 \% \\ \hline & & & \text { Equity } & \$ 10 & \\ \hline \text { Total } & \$ 100 & & \text { Total } & \$ 100 & \\ \hline \end{array}\] -What is the weighted average maturity of liabilities?

A) 5.50 years. B) 6.40 years. C) 1.44 years. D) 1.30 years. E) 1.10 years. A) 5.50 years. B) 6.40 years. C) 1.44 years. D) 1.30 years. E) 1.10 years.

\[\begin{array} { | l | c | c | l | c | c | } \hline \text { Assets } & \text { Amount } & \text { Rate } & \text { Liabilities } & \text { Amount } & \text { Rate } \\ \hline \begin{array} { l } \text { Rate } \\ \text { Sensitive } \end{array} & \$ 35,000,000 & 10 \% & \begin{array} { l } \text { Rate } \\ \text { Sensitive } \end{array} & \$ 40,000,000 & 8 \% \\ \hline \text { Fixed Rate } & \$ 21,000,000 & 9 \% & \text { Fixed Rate } & \$ 12,000,000 & 7 \% \\ \hline \text { Non-earning } & \$ 4,000,000 & & \text { Equity } & \$ 8,000,000 & \\ \hline \end{array}\] -What is the repricing gap for the FI?

A) $0. B) $5,000,000. C) $9,800,000. D) -$5,000,000. E) -$8,000,000. A) $0. B) $5,000,000. C) $9,800,000. D) -$5,000,000. E) -$8,000,000.

\[\begin{array} { | l | r | r | l | r | c | } \hline \text { Assets } & \begin{array} { l } \text { Amount } \\ \text { (\$ millions) } \end{array} & \begin{array} { l } \text { Annual } \\ \text { Rate } \end{array} & \text { Liabilities } & \begin{array} { l } \text { Amount } \\ \text { (\$ millions) } \end{array} & \begin{array} { l } \text { Annual } \\ \text { Rate } \end{array} \\ \hline \text { 2-year loans } & \$ 40 & 8 \% & \text { 3-year CD } & \$ 60 & 7 \% \\ \hline \text { 3-year loans } & \$ 60 & 8 \% & \text { 5-year term deposit } & \$ 30 & 6 \% \\ \hline & & & \text { Equity } & \$ 10 & \\ \hline \text { Total } & \$ 100 & & \text { Total } & \$ 100 & \\ \hline \end{array}\] -What is the weighted average maturity of the liabilities of the FI?

A) 3.67 years. B) 3.30 years. C) 3.00 years. D) 5.00 years. E) 4.33 years. A) 3.67 years. B) 3.30 years. C) 3.00 years. D) 5.00 years. E) 4.33 years.

Exam 8: Interest Rate Risk I

Face Value Runoff < year Face Value Runoff < year 3-mo. T-Bills \ 60 Demand Dep. \ 180 10 percent 2-yr Bonds \ 60 5 percent Equity \ 20 5-yr Bonds \ 80 10 percent -What is the repricing gap if a 3-year maturity gap is used? Ignore runoffs.

(Multiple Choice)

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Question 81

The repricing model is based on an accounting world that reports asset and liability values at

(Multiple Choice)

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Question 82

The net worth of a bank is the difference between the

(Multiple Choice)

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Question 83

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.

(True/False)

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Question 84

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?

(Multiple Choice)

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Question 85

The following information details the current rate sensitivity report for Gotbucks Bank, Inc. ($million). -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?

(Multiple Choice)

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Question 86

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

(True/False)

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Question 87

The liquidity premium theory of the term structure of interest rates

(Multiple Choice)

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Question 88

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

(True/False)

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Question 89

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

(True/False)

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Question 90

Assets Amount (\ millions) Annual Rate Liabilities Amount (\ millions) Annual Rate 1-year bonds \ 60 7\% 1-year CD \ 50 5\% 10-year loan \ 40 12\% 2-year CD \ 40 6\% Equity \ 10 Total \ 100 Total \ 100 -What is the weighted average maturity of liabilities?

(Multiple Choice)

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Question 91

The term structure of interest rates assumes that

(Multiple Choice)

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Question 92

The balance sheet of XYZ Bank appears below. All figures in millions of US Dollars. -The gap ratio is

(Multiple Choice)

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Question 93

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

(True/False)

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Question 94

Because of its simplicity, smaller depository institutions still use this model as their primary measure of interest rate risk.

(Multiple Choice)

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Question 95

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

(Multiple Choice)

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Question 96

Assets Amount Rate Liabilities Amount Rate Rate Sensitive \ 35,000,000 10\% Rate Sensitive \ 40,000,000 8\% Fixed Rate \ 21,000,000 9\% Fixed Rate \ 12,000,000 7\% Non-earning \ 4,000,000 Equity \ 8,000,000 -What is the repricing gap for the FI?

(Multiple Choice)

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Question 97

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

(Multiple Choice)

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Question 98

Assets Amount (\ millions) Annual Rate Liabilities Amount (\ millions) Annual Rate 2-year loans \ 40 8\% 3-year CD \ 60 7\% 3-year loans \ 60 8\% 5-year term deposit \ 30 6\% Equity \ 10 Total \ 100 Total \ 100 -What is the weighted average maturity of the liabilities of the FI?

(Multiple Choice)

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Question 99

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.

(True/False)

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Question 100

Exam 8: Interest Rate Risk I

Face Value Runoff < year Face Value Runoff < year 3-mo. T-Bills \ 60 Demand Dep. \ 180 10 percent 2-yr Bonds \ 60 5 percent Equity \ 20 5-yr Bonds \ 80 10 percent -What is the repricing gap if a 3-year maturity gap is used? Ignore runoffs.

The repricing model is based on an accounting world that reports asset and liability values at

The net worth of a bank is the difference between the

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.

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?

The following information details the current rate sensitivity report for Gotbucks Bank, Inc. ($million). -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?

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

The liquidity premium theory of the term structure of interest rates

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

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

Assets Amount (\ millions) Annual Rate Liabilities Amount (\ millions) Annual Rate 1-year bonds \ 60 7\% 1-year CD \ 50 5\% 10-year loan \ 40 12\% 2-year CD \ 40 6\% Equity \ 10 Total \ 100 Total \ 100 -What is the weighted average maturity of liabilities?

The term structure of interest rates assumes that

The balance sheet of XYZ Bank appears below. All figures in millions of US Dollars. -The gap ratio is

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

Because of its simplicity, smaller depository institutions still use this model as their primary measure of interest rate risk.

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

Assets Amount Rate Liabilities Amount Rate Rate Sensitive \ 35,000,000 10\% Rate Sensitive \ 40,000,000 8\% Fixed Rate \ 21,000,000 9\% Fixed Rate \ 12,000,000 7\% Non-earning \ 4,000,000 Equity \ 8,000,000 -What is the repricing gap for the FI?

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

Assets Amount (\ millions) Annual Rate Liabilities Amount (\ millions) Annual Rate 2-year loans \ 40 8\% 3-year CD \ 60 7\% 3-year loans \ 60 8\% 5-year term deposit \ 30 6\% Equity \ 10 Total \ 100 Total \ 100 -What is the weighted average maturity of the liabilities of the FI?

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.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

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Interest Rate Risk II

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Technology and Other Operational Risks

Liability and Liquidity Management

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