Exam 7: Risk Management for Changing Interest Rates: Asset-Liability Management and Duration Techniques

A bond has a duration of 7.5 years.Its current market price is $1,125.Interest rates in the market are 7 percent today.It has been forecasted that interest rates will rise to 9 percent over the next couple of weeks.How will the bond's price change in percentage terms?

One part of interest-rate risk is _____________________.This part of interest-rate risk reflects that as interest rates rise,prices of securities tend to fall.

Financial institutions laden with home mortgages tend be immune to interest-rate risk.

The change in a financial institution's __________________ is equal to difference between the average duration of assets times the change in the interest rate divided by (1+ original discount rate)times the dollar amount of total assets and the average duration of liabilities times the change in the interest rate divided by 1+ original discount rate times the dollar amount of total liabilities.

Net interest margin tends to rise for U.S.banks having positive maturity gap positions when the yield curve is upward-sloping.

If interest rates do not change in the next 90 days,what is this bank's net interest margin?

Convexity is the idea that the rate of change of an asset's price varies with the change in interest rates depending on the prevailing interest rates.

Loyola Bank classifies its assets and liabilities and the period (maturity buckets)within which they are subject to repricing as on March 31,2015 as follows: (dollars in millions) Interest-sensitive Interest-sensitive Maturity buckets assets liabilities One week \ 50 \ 45 8 to 25 days 75 70 25 to 40 days 60 75 40 to 60 days 70 80 60 to 90 days 80 70 90 to 180 days 180 160 180 to 365 days 210 190 Silvershine bank has $200 million in earning assets and $280 million in liabilities that are subject to an interest rate change each month over the next six months.If market interest rates suddenly rise by 2 full percentage points,what will be approximate change in the net interest income for the bank?

The fact that the rate of change in an asset's price varies with the level of interest rates is known as:

A bank has an average asset duration of 1.15 years and an average liability duration of 2.70 years.This bank has $250 million in total assets and $225 million in total liabilities.This bank's leverage-adjusted duration gap is a:

The net interest margin of a bank is influenced by:

Carolina National Bank knows that the interest rate on its loans change faster and by a larger amount than the interest rate on its deposits.What type of risk is this an example of?

__________________________ is the coordinated management of both the bank's assets and its liabilities.

U.S.banks having positive maturity gap positions tend to do better when the yield curve is upward-sloping.

__________________________ is the difference between interest-sensitive assets and interest-sensitive liabilities.

The Raymond Burr National Bank has $1,000 in assets with an average duration of 5 years.This bank has $800 in liabilities with an average duration of 6.25 years.Market interest rates start at 6 percent and fall by 1 percent.What is the change in net worth of this bank?

A bond is selling in the market for $1,100 and has a duration of 4.5 years.Market interest rates are 5 percent and are expected to increase to 7 percent in the near future.What will this bond's price be after the change in market interest rates?

If interest rates on both assets and liabilities fall by 2 percent in the next 90 days,what would be this bank's net interest margin?

The __________________________ component of interest rates is the risk premium due to the probability that the borrower will miss some payments or will not repay the loan.

Financial securities that are the same in all other ways may have differences in interest rates that reflect the differences in the ease of selling the security in the secondary market at a favorable price.