Exam 8: Interest Rate Risk I

To be more precise in measuring interest rate risk, the runoff component of long-term mortgages should be considered in the time buckets in which the maturities actually occur.

Because the increased level of financial market integration has increased the speed with which interest rate changes are transmitted among countries, control of Canadian interest rates by the Bank of Canada is more difficult and less certain.

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 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.

Defining buckets of time over wider intervals creates greater accuracy in the use of the repricing model because fewer calculations are required.

The following information details the current rate sensitivity report for Gotbucks Bank, Inc. ($million). Calculate the funding gap for Gotbucks Bank using (a) a 30 day maturity period and (b) a 91 day maturity period?

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 GIC if all market interest rates increase by 2 percent?

The repricing model measures the impact of unanticipated changes in interest rates on

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 effect on the value of the FI's equity if interest rates decrease by 1 percent?

Hadbucks National Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually. What is the impact on the FI's equity of a 2 percent overall increase in market interest rates on all fixed-rate instruments?