Question 1

Which of the following statements is true?

Accepted Answer

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

Question 2

Which of the following statements is true?

Accepted Answer

A)  The major focus of the repricing gap is the capital loss effect. 
B)  The major focus of the repricing gap is the capital gains effect. 
C)  The repricing gap focuses on all three, the capital gains, the capital loss and the interest income effect. 
D)  The major focus of the repricing gap is the interest income effect. 
A)  The major focus of the repricing gap is the capital loss effect. 
B)  The major focus of the repricing gap is the capital gains effect. 
C)  The repricing gap focuses on all three, the capital gains, the capital loss and the interest income effect. 
D)  The major focus of the repricing gap is the interest income effect.

Question 3

Which of the following statements is true?

Accepted Answer

A)  The repricing gap model is a market value accounting cash flow analysis of the repricing gap between the interest revenue earned on assets and the interest paid on liabilities over some period. 
B)  The repricing gap model is a book value accounting cash flow analysis of the repricing gap between the interest revenue earned on assets and the interest paid on liabilities over some period. 
C)  The repricing gap model is a market value accounting cash flow analysis of the repricing gap between the interest revenue earned on liabilities and the interest paid on assets over some period. 
D)  The repricing gap model is a book value accounting cash flow analysis of the repricing gap between the interest revenue earned on liabilities and the interest paid on assets over some period. 
A)  The repricing gap model is a market value accounting cash flow analysis of the repricing gap between the interest revenue earned on assets and the interest paid on liabilities over some period. 
B)  The repricing gap model is a book value accounting cash flow analysis of the repricing gap between the interest revenue earned on assets and the interest paid on liabilities over some period. 
C)  The repricing gap model is a market value accounting cash flow analysis of the repricing gap between the interest revenue earned on liabilities and the interest paid on assets over some period. 
D)  The repricing gap model is a book value accounting cash flow analysis of the repricing gap between the interest revenue earned on liabilities and the interest paid on assets over some period.

Question 4

When repricing all interest sensitive assets and all interest sensitive liabilities in a balance sheet, the cumulative gap will be:

Accepted Answer

A)  zero. 
B)  one. 
C)  greater than one. 
D)  a negative value. 
A)  zero. 
B)  one. 
C)  greater than one. 
D)  a negative value.

Question 5

If an FI's repricing gap is less than zero, then:

Accepted Answer

A)  it is deficient in its required reserves. 
B)  it is deficient in its capital ratio requirement. 
C)  its liability costs are more sensitive to changing market interest rates than are its asset yields. 
D)  its liability costs are less sensitive to changing market interest rates than are its asset yields. 
A)  it is deficient in its required reserves. 
B)  it is deficient in its capital ratio requirement. 
C)  its liability costs are more sensitive to changing market interest rates than are its asset yields. 
D)  its liability costs are less sensitive to changing market interest rates than are its asset yields.

Question 6

An FI with a neutral repricing gap in its three to six month bucket is hedged against any interest rate changes at all points in time.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is false?

Accepted Answer

A)  A major reason for cheque accounts to be included in an FI's interest-sensitive liabilities is that the majority of these accounts are core deposits. 
B)  Cheque accounts should be treated as interest-sensitive liabilities because if interest rates rise, deposits might be withdrawn and thus will need to be replaced by higher-yielding deposits. 
C)  The final decision whether or not to include cheque accounts as rate sensitive liabilities must be made after an analysis of the actual deposit history. 
D)  None of the listed options are correct. 
A)  A major reason for cheque accounts to be included in an FI's interest-sensitive liabilities is that the majority of these accounts are core deposits. 
B)  Cheque accounts should be treated as interest-sensitive liabilities because if interest rates rise, deposits might be withdrawn and thus will need to be replaced by higher-yielding deposits. 
C)  The final decision whether or not to include cheque accounts as rate sensitive liabilities must be made after an analysis of the actual deposit history. 
D)  None of the listed options are correct.

Question 8

How do you interpret the position of an FI with a negative on-balance-sheet gap and a positive off-balance-sheet gap?

Accepted Answer

A)  The FI uses its on-balance-sheet activities to hedge its off-balance-sheet activities. 
B)  The FI uses its off-balance-sheet activities to hedge its on-balance-sheet activities. 
C)  The FI believes that interest rates will decrease and made a mistake in setting its gap for off-balance-sheet activities. 
D)  The FI believes that interest rates will decrease and made a mistake in setting its gap for on-balance-sheet activities. 
A)  The FI uses its on-balance-sheet activities to hedge its off-balance-sheet activities. 
B)  The FI uses its off-balance-sheet activities to hedge its on-balance-sheet activities. 
C)  The FI believes that interest rates will decrease and made a mistake in setting its gap for off-balance-sheet activities. 
D)  The FI believes that interest rates will decrease and made a mistake in setting its gap for on-balance-sheet activities.

Question 9

The term core deposits refers to those deposits that:

Accepted Answer

A)  act as long-term sources of funds for the FI. 
B)  reflect the true or core nature of the FI's operations. 
C)  support the core of the FI's operations. 
D)  None of the listed options are correct. 
A)  act as long-term sources of funds for the FI. 
B)  reflect the true or core nature of the FI's operations. 
C)  support the core of the FI's operations. 
D)  None of the listed options are correct.

Question 10

The Reserve Bank of Australia's (RBA) monetary policy can reduce an FI's interest rate risk:

Accepted Answer

A)  by smoothing or targeting the level of interest rates it increases unexpected interest rate shocks and interest volatility. 
B)  by smoothing or targeting the level of interest rates it decreases unexpected interest rate shocks and interest volatility. 
C)  by letting interest rates find their own level it increases interest volatility. 
D)  All of the listed options are correct. 
A)  by smoothing or targeting the level of interest rates it increases unexpected interest rate shocks and interest volatility. 
B)  by smoothing or targeting the level of interest rates it decreases unexpected interest rate shocks and interest volatility. 
C)  by letting interest rates find their own level it increases interest volatility. 
D)  All of the listed options are correct.

Question 11

The repricing gap is a book-value based approach.

Accepted Answer

A) True 
 B)False

Question 12

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 within one year is an increase of 100 basis points?

Accepted Answer

A)  $17 000 
B)  -$17 000 
C)  $13 000 
D)  -$13 000 
A)  $17 000 
B)  -$17 000 
C)  $13 000 
D)  -$13 000

Question 13

Consider the following information to answer the question:   What will be the FI's net interest income at year-end if interest rates do not change?

Accepted Answer

A)  $3.20 million 
B)  $5.39 million 
C)  $1.89 million 
D)  $1.35 million 
A)  $3.20 million 
B)  $5.39 million 
C)  $1.89 million 
D)  $1.35 million

Question 14

An FI with a negative gap of $20 million suffers a $0.2 million decrease in its net interest income if interest rates decrease by 1 per cent.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is true?

Accepted Answer

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

Question 16

Convexity is the major problem associated with the repricing gap.

Accepted Answer

A) True 
 B)False

Question 17

The term 'rate-sensitive assets' refers to assets:

Accepted Answer

A)  whose interest rate will be repriced over some future period. 
B)  with a particularly high interest rate. 
C)  with a particularly low interest rate. 
D)  for which demand is highly dependent on the level of interest rates. 
A)  whose interest rate will be repriced over some future period. 
B)  with a particularly high interest rate. 
C)  with a particularly low interest rate. 
D)  for which demand is highly dependent on the level of interest rates.

Question 18

The term 'runoffs' refers to:

Accepted Answer

A)  one-off cash flow of interest and principal amortisation payments on long-term assets. 
B)  periodic cash flow of interest and principal amortisation payments on long-term assets. 
C)  one-off cash flow of interest and principal amortisation payments on short-term assets. 
D)  periodic cash flow of interest and principal amortisation payments on short-term assets. 
A)  one-off cash flow of interest and principal amortisation payments on long-term assets. 
B)  periodic cash flow of interest and principal amortisation payments on long-term assets. 
C)  one-off cash flow of interest and principal amortisation payments on short-term assets. 
D)  periodic cash flow of interest and principal amortisation payments on short-term assets.

Question 19

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

Accepted Answer

A)  The NII will not change. 
B)  The NII will increase by $50. 
C)  The NII will increase by $5. 
D)  The NII will decrease by $50. 
A)  The NII will not change. 
B)  The NII will increase by $50. 
C)  The NII will increase by $5. 
D)  The NII will decrease by $50.

Question 20

The unbiased expectations theory of the term structure of interest rates:

Accepted Answer

A)  assumes that long-term interest rates are an arithmetic average of short-term rates. 
B)  assumes that the yield curve reflects the market's current expectations of future short-term interest rates. 
C)  recognises that forward rates are perfect predictors of future interest rates. 
D)  assumes that risk premiums increase uniformly with maturity. 
A)  assumes that long-term interest rates are an arithmetic average of short-term rates. 
B)  assumes that the yield curve reflects the market's current expectations of future short-term interest rates. 
C)  recognises that forward rates are perfect predictors of future interest rates. 
D)  assumes that risk premiums increase uniformly with maturity.

Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

When repricing all interest sensitive assets and all interest sensitive liabilities in a balance sheet, the cumulative gap will be:

If an FI's repricing gap is less than zero, then:

An FI with a neutral repricing gap in its three to six month bucket is hedged against any interest rate changes at all points in time.

Which of the following statements is false?

How do you interpret the position of an FI with a negative on-balance-sheet gap and a positive off-balance-sheet gap?

The term core deposits refers to those deposits that:

The Reserve Bank of Australia's (RBA) monetary policy can reduce an FI's interest rate risk:

The repricing gap is a book-value based approach.

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 within one year is an increase of 100 basis points?

Consider the following information to answer the question: What will be the FI's net interest income at year-end if interest rates do not change?

An FI with a negative gap of $20 million suffers a $0.2 million decrease in its net interest income if interest rates decrease by 1 per cent.

Which of the following statements is true?

Convexity is the major problem associated with the repricing gap.

The term 'rate-sensitive assets' refers to assets:

The term 'runoffs' refers to:

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

The unbiased expectations theory of the term structure of interest rates:

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 statements is true?

Which of the following statements is true?

Which of the following statements is true?

When repricing all interest sensitive assets and all interest sensitive liabilities in a balance sheet, the cumulative gap will be:

If an FI's repricing gap is less than zero, then:

An FI with a neutral repricing gap in its three to six month bucket is hedged against any interest rate changes at all points in time.

Which of the following statements is false?

How do you interpret the position of an FI with a negative on-balance-sheet gap and a positive off-balance-sheet gap?

The term core deposits refers to those deposits that:

The Reserve Bank of Australia's (RBA) monetary policy can reduce an FI's interest rate risk:

The repricing gap is a book-value based approach.

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 within one year is an increase of 100 basis points?

Consider the following information to answer the question: What will be the FI's net interest income at year-end if interest rates do not change?

An FI with a negative gap of $20 million suffers a $0.2 million decrease in its net interest income if interest rates decrease by 1 per cent.

Which of the following statements is true?

Convexity is the major problem associated with the repricing gap.

The term 'rate-sensitive assets' refers to assets:

The term 'runoffs' refers to:

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

The unbiased expectations theory of the term structure of interest rates:

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