Exam 22: Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

A bank has DA = 2.5 years,DL= 0.80 years,and k = 92%. Assets are equal to $1,200 million. According to the duration gap model,what size interest rate change would make the institution insolvent if rates are currently 5 percent?

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Question 21

With a six-month maturity bucket,a nine-month fixed-rate loan would be considered a asset and a 30-year mortgage with a rate adjustment in three months would be classified as a asset.

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Question 22

A bank has DA = 2.4 years and DL= 0.9 years. The bank has total equity of $82 million and total assets of $850 million. Interest rates are at 6 percent. If interest rates increase 100 basis points,the predicted dollar change in equity value will equal

(Multiple Choice)

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Question 23

A bank has DA = 2.4 years and DL= 0.9 years. The bank has total equity of $82 million and total assets of $850 million. Interest rates are at 6 percent. What is the bank's duration gap in years?

(Multiple Choice)

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Question 24

A bank has the following balance sheet: The bank's one-year repricing gap is (million $)

(Multiple Choice)

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Question 25

A bank has a positive repricing gap using a six-month maturity bucket. Which one of the following statements is most correct?

(Multiple Choice)

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Question 26

Convexity in bond prices is caused by the

(Multiple Choice)

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Question 27

Explain how interest rate risk could change at banks,thrifts,and other institutions that originate and sell fixed-rate mortgages but are funded with deposits if these institutions lose the ability to securitize and sell mortgages. What could be the effect on the economy?

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Question 28

The repricing gap fails to consider how the value of fixed-income accounts will change when rates change.

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Question 29

Weaknesses of the duration gap immunization model include all but which of the following?

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Question 30

Insolvency occurs when an institution's duration gap becomes negative.

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Question 31

An FI's balance sheet is characterized by long-term fixed-rate assets funded by short-term variable-rate securities. Most likely the bank has a

(Multiple Choice)

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Question 32

After interest rate and yield curve changes,a bank's market value of assets increased $4 million and the market value of its liabilities fell $6 million. The book value of equity and the market value of equity .

(Multiple Choice)

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Question 33

A bond's price changes 2 percent when interest rates drop. The duration model would predict a price increase of more than 2 percent.

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Question 34

Explain how an FI's capital protects against credit risk and interest rate risk.

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Question 35

A thrift has an annual CGAP of −$25 million. A credit union has an annual CGAP of +$5 million. The thrift has total assets of $500 million and net income of $7.5 million,and the credit union has total assets of $40 million and net income of $0.7 million. Assuming a zero spread effect,if all interest rates decrease 50 basis points,what is the change in NII for the thrift? For the credit union?

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Question 36

What factors can cause a bank's book value of equity to differ from its market value? What widely available ratio is typically used to measure the difference between the two?

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Question 37

A bank has book value of assets equal to $800 million and market value of assets equal to $1,100 million. The bank has book value of liabilities of $700 million and market value of liabilities equal to $850 million. The bank's market-to-book ratio is

(Multiple Choice)

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Question 38

A bank has a negative duration gap. Interest rates decline. Which one of the following best describes the effects of the interest rate change?

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Question 39

What are four major weaknesses of the repricing model?

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Question 40

Showing 21 - 40 of 58

Exam 22: Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

A bank has DA = 2.5 years,DL= 0.80 years,and k = 92%. Assets are equal to $1,200 million. According to the duration gap model,what size interest rate change would make the institution insolvent if rates are currently 5 percent?

With a six-month maturity bucket,a nine-month fixed-rate loan would be considered a ________ asset and a 30-year mortgage with a rate adjustment in three months would be classified as a ________ asset.

A bank has DA = 2.4 years and DL= 0.9 years. The bank has total equity of $82 million and total assets of $850 million. Interest rates are at 6 percent. If interest rates increase 100 basis points,the predicted dollar change in equity value will equal

A bank has DA = 2.4 years and DL= 0.9 years. The bank has total equity of $82 million and total assets of $850 million. Interest rates are at 6 percent. What is the bank's duration gap in years?

A bank has the following balance sheet: The bank's one-year repricing gap is (million $)

A bank has a positive repricing gap using a six-month maturity bucket. Which one of the following statements is most correct?

Convexity in bond prices is caused by the

Explain how interest rate risk could change at banks,thrifts,and other institutions that originate and sell fixed-rate mortgages but are funded with deposits if these institutions lose the ability to securitize and sell mortgages. What could be the effect on the economy?

The repricing gap fails to consider how the value of fixed-income accounts will change when rates change.

Weaknesses of the duration gap immunization model include all but which of the following?

Insolvency occurs when an institution's duration gap becomes negative.

An FI's balance sheet is characterized by long-term fixed-rate assets funded by short-term variable-rate securities. Most likely the bank has a

After interest rate and yield curve changes,a bank's market value of assets increased $4 million and the market value of its liabilities fell $6 million. The book value of equity ________ and the market value of equity ________.

A bond's price changes 2 percent when interest rates drop. The duration model would predict a price increase of more than 2 percent.

Explain how an FI's capital protects against credit risk and interest rate risk.

What factors can cause a bank's book value of equity to differ from its market value? What widely available ratio is typically used to measure the difference between the two?

A bank has book value of assets equal to $800 million and market value of assets equal to $1,100 million. The bank has book value of liabilities of $700 million and market value of liabilities equal to $850 million. The bank's market-to-book ratio is

A bank has a negative duration gap. Interest rates decline. Which one of the following best describes the effects of the interest rate change?

What are four major weaknesses of the repricing model?

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

With a six-month maturity bucket,a nine-month fixed-rate loan would be considered a asset and a 30-year mortgage with a rate adjustment in three months would be classified as a asset.

After interest rate and yield curve changes,a bank's market value of assets increased $4 million and the market value of its liabilities fell $6 million. The book value of equity and the market value of equity .