Exam 5: An Overview of Assetliability Management Alm

Aggressive gap management that successfully increases the net interest income of the bank may well decrease shareholder wealth, all else the same, because:

Given the following definitions: D_A = the average duration of assets D_L = the average duration of liabilities W = the ratio of total liabilities to total assets The formula for the duration gap is:

Which of the following is NOT a problem in the use of duration gap management?

Simulation models allow the bank to examine its total balance sheet and income statement under a wide variety of assumptions.

If a bank expected interest rates to fall, and if it wanted to profit from the decline, it should increase the duration of its assets and shorten the duration of its liabilities.

Forecasts of changes in the market value of equity due to interest rate changes assume parallel shifts in the yield curve.

If the duration gap is zero, then the market value of equity is ____________ interest rates.

The problem of imperfect correlation of interest rates in the use of gap analysis can be dealt with by using:

Given the following information: Interest sensitive assets = $300 30-day commercial paper Interest sensitive liabilities = $400 90-day CDs 30-day commercial paper is 50 percent as volatile as 90-day T-bills 90-day CDs are 120 percent as volatile as 90-day T-bills Calculate the standardized gap for the bank.

Duration drift refers to the drift in the market value of equity due to changes in interest rates.

A defensive strategy is necessarily a passive one.

Expectations of rising interest rates would be consistent with a negative gap position.

If the yield curve were upward sloping, the bank could accept some interest rate risk and earn a positive interest rate spread by using:

Duration gap focuses directly on the market value of equity.

Transactions in federal funds, short-term Treasury securities, certificates of deposit, and Treasury bonds are all legitimate to make short-term adjustments in assets and liabilities.

Which of the following types of asset/liability management focuses on increasing the net interest margin through altering the portfolio of the institution.

The change in the market value of the equity as a percentage of total assets for a bank with a duration gap of 2.24 assuming interest rates increase 2% from 10% equals:

A defensive strategy attempts to keep the volume of rate-sensitive assets in balance with the volume of rate-sensitive liabilities over a period.

The principal purpose of asset/liability management has been to increase the size of the firm as measured by total assets.

In which part of the business cycle are interest rates falling?