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

A bank has a 1-year $1,000,000 loan outstanding,payable in four equal quarterly installments.What dollar amount of the loan would be considered rate sensitive in the 0-90 day bucket?

When a bank has a positive duration gap a parallel increase in the interest rates on the assets and liabilities of the bank will lead to a(n)__________________ in the bank's net worth.

The fact that a consumer who purchases a particular basket of goods for $100 today has to pay $105 next year for the same basket of goods is an example of which of the following risks?

The yield curve is constructed using corporate bonds with different default risks,so that the bank can determine the risk/return tradeoff for default risk.

Most lending institutions tend to do better when the yield curve is upward-sloping because they tend to have ____________ maturity gap positions.

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

The interest rate on one year Treasury Bonds is 5 percent.The interest rate on five year Treasury Bonds is 7.5 percent.The interest rate on ten year Treasury Bonds is 10 percent.What is true about the yield curve?

If a bank has a negative interest-sensitive gap,one of the possible management responses would be to:

The __________________ premium on a bond reflects the differences in the ease and ability to sell the bond in the secondary market at a favorable price.

__________________________ is the difference between the dollar-weighted duration of the asset portfolio and the dollar-weighted duration of the liability portfolio.

Maryellen Epplin notices that a particular T-Bill has a banker's discount rate of 9 percent in the Wall Street Journal.She knows that this T-Bill has 20 days to maturity and has a face value of $10,000. What price is this T-Bill selling for in the market?

Jackson State Bank is worried because many of the loans it has made are home mortgages which can be paid off early by the homeowner.What type of risk would this be an example of?

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

Duration is the weighted average maturity of a promised stream of future cash flows.

The interest-rate risk which arises when a borrower has the right to pay off a loan early reducing the lender's expected rate of return is called ______________.

What is the dollar interest-sensitive gap of this bank?

The __________________ shows the relationship between the time to maturity and the yield to maturity of bonds.

When a bank has a negative duration gap,a parallel decrease in the interest rates on the assets and liabilities of the bank will lead to a(n)_________________________ in the bank's net worth.

The principal goal of interest rate hedging strategy is to hold fixed a bank's:

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.What will be this bank's leverage-adjusted duration gap?