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

The Arnold National Bank has a bond portfolio that consists of bonds with 5 years to maturity and a 9 percent coupon rate having a face value of $1,000.These bonds are selling in the market for $1,126.Coupon payments are made annually on this bond. What is duration of these bonds?

A an average asset duration of 4.7 years and an average liability duration of 3.3 years.This bank has $750 million in total assets and $500 million in total liabilities.This bank's leverage-adjusted duration gap is a:

A liability-sensitive bank will experience an increase in its net interest margin if interest rates rise.

Under the so-called funds management view,bank management's control over assets must be coordinated with its control over liabilities,so that asset and liability management are internally consistent.

_____________________________ are those liabilities that mature or must be repriced within the planning period.

U.S.banks tend to fare best when the yield curve is:

The __________________ premium on a bond allows the investor to be compensated for their projected loss in purchasing power from the increase in the prices of goods and services in the future.

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

As per the __________________ strategy,financial-service managers set interest-sensitive gap as close to zero as possible to reduce the expected volatility of net interest income.

The change in the market price of an asset due to a change in market interest rates is roughly equal to the asset's duration times the relative change in interest rates attached to that particular asset.

Long-term interest rates tend to change very little with the cycle of economic activity.

Which of the following would be an example of a nonrepriceable liability?

Asset management strategy in banking assumes that the amount and kinds of deposits and other borrowed funds a bank attracts are determined largely by its management.

Financial institutions face two major kinds of interest-rate risk.These risks include price risk and reinvestment risk.

A bank has an average asset duration of 5 years and an average liability duration of 3 years.This bank has total assets of $500 million and total liabilities of $250 million.Currently,market interest rates are 10 percent.What will be this bank's leverage-adjusted duration gap?

A bank has an average asset duration of 5 years and an average liability duration of 9 years.This bank has total assets of $1,000 million and total liabilities of $850 million.Currently,market interest rates are 5 percent.If interest rates rise by 2 percent (to 7 percent),what is this bank's change in net worth?

__________________________ is interest income from loans and investments less interest expenses on deposits and borrowed funds divided by total earning assets.

_______________________ is a measure of interest-rate risk exposure which is the total difference in dollars between those assets and liabilities that can be repriced over a designated time period.

The Arnold National Bank has a bond portfolio that consists of bonds with 5 years to maturity and a 9 percent coupon rate having a face value of $1,000.These bonds are selling in the market for $1,126.Coupon payments are made annually on this bond. What is the yield to maturity on these bonds?

The __________________________ is the interest rate that equalizes the current market price of a bond with the present value of the future cash flows.