Question 1

Which of the following is a weakness of the repricing model to measure interest rate risk?

Accepted Answer

A)  Potential for over-aggregation of assets and liabilities within each maturity bucket. 
B)  It ignores how changes in interest rates affect the market value of assets and liabilities. 
C)  It ignores the reinvestment of loan interest and principal payments that are reinvested at current market rates and it fails to recognise off-balance-sheet activities that may be rate sensitive. 
D)  All of the listed options are correct. 
A)  Potential for over-aggregation of assets and liabilities within each maturity bucket. 
B)  It ignores how changes in interest rates affect the market value of assets and liabilities. 
C)  It ignores the reinvestment of loan interest and principal payments that are reinvested at current market rates and it fails to recognise off-balance-sheet activities that may be rate sensitive. 
D)  All of the listed options are correct. D

Question 2

The repricing gap considers the timing and size of cash flows.

Accepted Answer

A) True 
 B)False  False

Question 3

Repricing gap refers to the:

Accepted Answer

A)  difference between rate-sensitive assets and rate-sensitive liabilities. 
B)  sum of rate-sensitive assets and rate-sensitive liabilities. 
C)  difference between rate-sensitive liabilities and rate-sensitive assets. 
D)  difference between rate-insensitive assets and rate-insensitive liabilities. 
A)  difference between rate-sensitive assets and rate-sensitive liabilities. 
B)  sum of rate-sensitive assets and rate-sensitive liabilities. 
C)  difference between rate-sensitive liabilities and rate-sensitive assets. 
D)  difference between rate-insensitive assets and rate-insensitive liabilities. A

Question 4

Which of the following statements is true?

Accepted Answer

A)  An FI with a positive repricing gap expects interest rates to remain stable. 
B)  An FI with a positive repricing gap expects interest rates to rise. 
C)  An FI with a positive repricing gap expects interest rates to remain fall. 
D)  An FI with a positive repricing gap has not particular expectations regarding interest rate movements. 
A)  An FI with a positive repricing gap expects interest rates to remain stable. 
B)  An FI with a positive repricing gap expects interest rates to rise. 
C)  An FI with a positive repricing gap expects interest rates to remain fall. 
D)  An FI with a positive repricing gap has not particular expectations regarding interest rate movements.

Question 5

Outline what is meant by the CGAP effect and explain the relationship between interest rate changes and changes in net interest income. Specifically indicate whether a FI would wish to hold a negative or positive CGAP and under which interest rate conditions.

Accepted Answer

The CGAP effect describes the relations

Question 6

What is spread effect?

Accepted Answer

A)  Periodic cash flow of interest and principal amortisation payments on long-term assets that can be reinvested at market rates. 
B)  The effect that a change in the spread between rates on rate sensitive assets and rate sensitive liabilities has on net interest income as interest rates change. 
C)  The effect of mismatch of asset and liabilities within a maturity bucket. 
D)  The premium paid to compensate for the future uncertainty in a security's value. 
A)  Periodic cash flow of interest and principal amortisation payments on long-term assets that can be reinvested at market rates. 
B)  The effect that a change in the spread between rates on rate sensitive assets and rate sensitive liabilities has on net interest income as interest rates change. 
C)  The effect of mismatch of asset and liabilities within a maturity bucket. 
D)  The premium paid to compensate for the future uncertainty in a security's value.

Question 7

Which of the following statements is true?

Accepted Answer

A)  As opposed to the duration model, the repricing gap model is a market-value based approach. 
B)  As opposed to the maturity model, the repricing gap model is a market-value based approach. 
C)  The capital loss effect is captured by the repricing model. 
D)  None of the listed options are correct. 
A)  As opposed to the duration model, the repricing gap model is a market-value based approach. 
B)  As opposed to the maturity model, the repricing gap model is a market-value based approach. 
C)  The capital loss effect is captured by the repricing model. 
D)  None of the listed options are correct.

Question 8

Consider the following table:    How does a decrease in the average one-year interest rate of 50 basis points affect the FI's future net interest income?

Accepted Answer

A)  The NII decreases by $0.435. 
B)  The NII increases by $0.435. 
C)  The NII remains constant. 
D)  The NII decreases by $0.39. 
A)  The NII decreases by $0.435. 
B)  The NII increases by $0.435. 
C)  The NII remains constant. 
D)  The NII decreases by $0.39.

Question 9

The liquidity premium theory of the term structure of interest rates:

Accepted Answer

A)  assumes that investors will hold long-term maturity assets if there is a sufficient premium to compensate for the uncertainty of the long term. 
B)  assumes that long-term interest rates are an arithmetic average of short-term rates plus a liquidity premium. 
C)  recognises that forward rates are perfect predictors of future interest rates. 
D)  assumes that risk premiums increase uniformly with maturity. 
A)  assumes that investors will hold long-term maturity assets if there is a sufficient premium to compensate for the uncertainty of the long term. 
B)  assumes that long-term interest rates are an arithmetic average of short-term rates plus a liquidity premium. 
C)  recognises that forward rates are perfect predictors of future interest rates. 
D)  assumes that risk premiums increase uniformly with maturity.

Question 10

Which of the following statements is true?

Accepted Answer

A)  A negative gap indicates that a rise in interest rates would lower the bank's net interest income. 
B)  A positive gap indicates that a rise in interest rates would lower the bank's net interest income. 
C)  A negative gap indicates that a rise in interest rates would increase the bank's net interest income. 
D)  None of the listed options are correct. 
A)  A negative gap indicates that a rise in interest rates would lower the bank's net interest income. 
B)  A positive gap indicates that a rise in interest rates would lower the bank's net interest income. 
C)  A negative gap indicates that a rise in interest rates would increase the bank's net interest income. 
D)  None of the listed options are correct.

Question 11

The market segmentation theory of the term structure of interest rates:

Accepted Answer

A)  assumes that investors will hold long-term maturity assets if there is a sufficient premium to compensate for the uncertainty of the long term. 
B)  assumes that the yield curve reflects the market's current expectations of future short-term interest rates. 
C)  assumes that market rates are determined by supply and demand conditions within fairly distinct time or maturity buckets. 
D)  assumes that both investors and borrowers are willing to shift from one maturity sector to another to take advantage of opportunities arising from changing yields. 
A)  assumes that investors will hold long-term maturity assets if there is a sufficient premium to compensate for the uncertainty of the long term. 
B)  assumes that the yield curve reflects the market's current expectations of future short-term interest rates. 
C)  assumes that market rates are determined by supply and demand conditions within fairly distinct time or maturity buckets. 
D)  assumes that both investors and borrowers are willing to shift from one maturity sector to another to take advantage of opportunities arising from changing yields.

Question 12

Consider the following repricing buckets and gaps:   What is the annualised change in the bank's future net interest income if the overnight interest rate decreased by 100 basis points?

Accepted Answer

A)  -$700 
B)  $700 
C)  -$7000 
A)  -$700 
B)  $700 
C)  -$7000

Question 13

The cumulative gap over the whole balance sheet by definition:

Accepted Answer

A)  must be greater than zero. 
B)  must be lower than zero. 
C)  must equal zero. 
D)  can take any value. 
A)  must be greater than zero. 
B)  must be lower than zero. 
C)  must equal zero. 
D)  can take any value.

Question 14

Consider the following repricing buckets and gaps:   What is the annualised change in the bank's future net interest income if the average rate change for assets and liabilities that can be repriced over five years is an increase of 50 basis points?

Accepted Answer

A)  $7500 
B)  $0 
C)  No enough information to answer the question. 
A)  $7500 
B)  $0 
C)  No enough information to answer the question.

Question 15

Which of the following are rate-sensitive assets?

Accepted Answer

A)  Short-term consumer loans, cheque accounts and three-month Treasury notes. 
B)  Ten-year fixed rate mortgages, short-term consumer loans and long-term consumer loans. 
C)  Short-term consumer loans, ten-year fixed rate mortgages and one-year term deposits. 
D)  Short-term consumer loans, six-month Treasury notes and three-year 
A)  Short-term consumer loans, cheque accounts and three-month Treasury notes. 
B)  Ten-year fixed rate mortgages, short-term consumer loans and long-term consumer loans. 
C)  Short-term consumer loans, ten-year fixed rate mortgages and one-year term deposits. 
D)  Short-term consumer loans, six-month Treasury notes and three-year

Question 16

The repricing gap focuses on the interest income effect.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is true?

Accepted Answer

A)  The runoff component is rate-sensitive. 
B)  The runoff component is rate-insensitive. 
C)  The runoff component refers to interest payments on long-term liabilities that need to be refinanced at market rates. 
D)  The run-off component refers to interest payments on short-term liabilities that need to be refinanced at market rates. 
A)  The runoff component is rate-sensitive. 
B)  The runoff component is rate-insensitive. 
C)  The runoff component refers to interest payments on long-term liabilities that need to be refinanced at market rates. 
D)  The run-off component refers to interest payments on short-term liabilities that need to be refinanced at market rates.

Question 18

In the last quarter ABC Bank reported the following repricing buckets:
  
Calculate the repricing gaps for each maturity bucket and the cumulative gaps.

Accepted Answer

The answer of In the last quarter ABC Bank reported...

Question 19

An FI with a positive repricing gap expects interest rates to decrease.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is true?

Accepted Answer

A)  The size of the range over which bucket gaps are calculated does not matter as the repricing gap will always lead to exact results. 
B)  The shorter the range over which bucket gaps are calculated, the greater the potential error. 
C)  The shorter the range over which bucket gaps are calculated, the smaller the potential error. 
D)  None of the listed options are correct. 
A)  The size of the range over which bucket gaps are calculated does not matter as the repricing gap will always lead to exact results. 
B)  The shorter the range over which bucket gaps are calculated, the greater the potential error. 
C)  The shorter the range over which bucket gaps are calculated, the smaller the potential error. 
D)  None of the listed options are correct.

Which of the following is a weakness of the repricing model to measure interest rate risk?

The repricing gap considers the timing and size of cash flows.

Repricing gap refers to the:

Which of the following statements is true?

Outline what is meant by the CGAP effect and explain the relationship between interest rate changes and changes in net interest income. Specifically indicate whether a FI would wish to hold a negative or positive CGAP and under which interest rate conditions.

What is spread effect?

Which of the following statements is true?

Consider the following table: How does a decrease in the average one-year interest rate of 50 basis points affect the FI's future net interest income?

The liquidity premium theory of the term structure of interest rates:

Which of the following statements is true?

The market segmentation theory of the term structure of interest rates:

Consider the following repricing buckets and gaps: What is the annualised change in the bank's future net interest income if the overnight interest rate decreased by 100 basis points?

The cumulative gap over the whole balance sheet by definition:

Consider the following repricing buckets and gaps: What is the annualised change in the bank's future net interest income if the average rate change for assets and liabilities that can be repriced over five years is an increase of 50 basis points?

Which of the following are rate-sensitive assets?

The repricing gap focuses on the interest income effect.

Which of the following statements is true?

In the last quarter ABC Bank reported the following repricing buckets: Calculate the repricing gaps for each maturity bucket and the cumulative gaps.

An FI with a positive repricing gap expects interest rates to decrease.

Which of the following statements is true?

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters

Exam 5: Interest Rate Risk Measurement: The Repricing Model

Which of the following is a weakness of the repricing model to measure interest rate risk?

The repricing gap considers the timing and size of cash flows.

Repricing gap refers to the:

Which of the following statements is true?

Outline what is meant by the CGAP effect and explain the relationship between interest rate changes and changes in net interest income. Specifically indicate whether a FI would wish to hold a negative or positive CGAP and under which interest rate conditions.

What is spread effect?

Which of the following statements is true?

Consider the following table: How does a decrease in the average one-year interest rate of 50 basis points affect the FI's future net interest income?

The liquidity premium theory of the term structure of interest rates:

Which of the following statements is true?

The market segmentation theory of the term structure of interest rates:

Consider the following repricing buckets and gaps: What is the annualised change in the bank's future net interest income if the overnight interest rate decreased by 100 basis points?

The cumulative gap over the whole balance sheet by definition:

Consider the following repricing buckets and gaps: What is the annualised change in the bank's future net interest income if the average rate change for assets and liabilities that can be repriced over five years is an increase of 50 basis points?

Which of the following are rate-sensitive assets?

The repricing gap focuses on the interest income effect.

Which of the following statements is true?

In the last quarter ABC Bank reported the following repricing buckets: Calculate the repricing gaps for each maturity bucket and the cumulative gaps.

An FI with a positive repricing gap expects interest rates to decrease.

Which of the following statements is true?

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters