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

Short-term interest rates tend to rise more slowly than long-term interest rates and to fall more slowly when the long-term interest rates in the market are headed down.

A bank with a positive duration gap experiencing a rise in interest rates will experience an increase in its net worth.

A bank has $100 million of investment grade bonds with a duration of 9.0 years.This bank also has $500 million of commercial loans with a duration of 5.0 years.This bank has $300 million of consumer loans with a duration of 2.0 years.This bank has deposits of $600 million with a duration of 1.0 year and non-deposit borrowings of $100 million with an average duration of .25 years.What is this bank's duration gap? These are all of the assets and liabilities this bank has.

The ___________________ view of assets and liabilities held that the amount and types of deposits was primarily determined by customers and hence the key decision a bank needed to make was with the assets.

Interest-sensitive gap and weighted interest-sensitive gap will always reach the same conclusion as to whether a bank is asset sensitive or liability sensitive.

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 What is the cumulative gap of the bank for interest-sensitive assets and interest-sensitive liabilities of maturity buckets up to 180 days as on March 31,2015?

Banks with a negative cumulative interest-sensitive gap will benefit if interest rates rise,but lose income if interest rates decline.

Under the so-called liability management view in banking,the key control lever banks possess over the volume and mix of their liabilities is price.

Which of the following would be an example of a repriceable asset?

The interest-rate measure often quoted on short-term loans and money market securities such as U.S.Treasury bills is the

The assets and liabilities of Finacle Bank as on December 31,2015,are as follows: $20,000 of short-term securities issued by governments and private borrowers (about to mature),$12,000 of borrowings from the money market,$15,000 of short-term savings accounts,$12,000 of variable-rate loans and securities,$18,000 of long-term loans made at a fixed interest rate,$25,000 of long-term savings and retirement accounts,$22,000 of deposits in the Central Bank (held as legal reserves),$550,000 of equity capital provided by the bank's owners,and $500,000 of building and equipment. Which of the following is a repriceable liability for Finacle Bank?

The discount rate that equalizes the current market value of a loan or security with the expected stream of future income payments from that loan or security is known as:

Which of the following is a true statement?

A bank with a positive duration gap experiencing a decrease in interest rates will experience an increase in its net worth.

A bank with a negative duration gap experiencing a decrease in interest rates will experience an increase in its net worth.

A bank whose interest-sensitive assets total $350 million and its interest-sensitive liabilities amount to $175 million has:

___________________________ is the phenomenon by which interest rates attached to various assets often change by different amounts and at different speeds than interest rates attached to various liabilities.

If a financial institution's net interest margin is immune to interest-rate risk,then so is its net worth.

If interest rates on both assets and liabilities rise by 2 percent in the next 90 days,what should happen to this bank's net interest margin?

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 What is the interest-sensitive gap of the bank as on March 31,2015?