Question 1

The repricing gap approach calculates the gaps in each maturity bucket by subtracting the:

Accepted Answer

A) current assets from the current liabilities. 
B) long-term liabilities from the fixed assets. 
C) rate sensitive assets from the total assets. 
D) rate sensitive liabilities from the rate sensitive assets. 
A) current assets from the current liabilities. 
B) long-term liabilities from the fixed assets. 
C) rate sensitive assets from the total assets. 
D) rate sensitive liabilities from the rate sensitive assets.

Question 2

The repricing model ignores information regarding the distribution of assets and liabilities within maturity buckets.This limitation of the model refers to:

Accepted Answer

A) market value effect. 
B) over-aggregation. 
C) runoffs and pre-payments. 
D) off-balance sheet activities. 
A) market value effect. 
B) over-aggregation. 
C) runoffs and pre-payments. 
D) off-balance sheet activities.

Question 3

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 4

Which of the following statements is true?

Accepted Answer

A) Cheque accounts are a type of interest-sensitive asset. 
B) Cheque accounts are a type of interest-sensitive liability. 
C) There are strong arguments for and against the inclusion of cheque accounts as a type of interest-sensitive asset. 
D) There are strong arguments for and against the inclusion of cheque accounts as a type of interest-sensitive liability. 
A) Cheque accounts are a type of interest-sensitive asset. 
B) Cheque accounts are a type of interest-sensitive liability. 
C) There are strong arguments for and against the inclusion of cheque accounts as a type of interest-sensitive asset. 
D) There are strong arguments for and against the inclusion of cheque accounts as a type of interest-sensitive liability.

Question 5

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 6

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 7

Which of the following statements is true?

Accepted Answer

A) An FI that has a positive on-balance-sheet gap and a negative off-balance-sheet gap is not sure about interest movements. 
B) An FI that has a positive on-balance-sheet gap and a negative off-balance-sheet gap has made a mistake in hedging its interest rate risk. 
C) An FI that has a positive on-balance-sheet gap and a negative off-balance-sheet gap is using its off-balance-sheet position to hedge its on-balance-sheet position. 
D) None of the listed options are correct. 
A) An FI that has a positive on-balance-sheet gap and a negative off-balance-sheet gap is not sure about interest movements. 
B) An FI that has a positive on-balance-sheet gap and a negative off-balance-sheet gap has made a mistake in hedging its interest rate risk. 
C) An FI that has a positive on-balance-sheet gap and a negative off-balance-sheet gap is using its off-balance-sheet position to hedge its on-balance-sheet position. 
D) None of the listed options are correct.

Question 8

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 9

Which of the following statements is true?

Accepted Answer

A) The cumulative repricing gap can also be expressed as a percentage of liabilities. 
B) The cumulative repricing gap can also be expressed as a percentage of equity. 
C) The cumulative repricing gap can also be expressed as a percentage of assets. 
D) None of the listed options are correct. 
A) The cumulative repricing gap can also be expressed as a percentage of liabilities. 
B) The cumulative repricing gap can also be expressed as a percentage of equity. 
C) The cumulative repricing gap can also be expressed as a percentage of assets. 
D) None of the listed options are correct.

Question 10

The bank has a positive repricing gap.Is it exposed to interest rate increases or decreases and why?

Accepted Answer

A) Interest rate increases because the interest income on its assets will rise more than the interest expenses on its liabilities and net interest income will rise. 
B) Interest rate increases because the interest income on its assets will fall more than the interest expenses on its liabilities and net interest income will fall. 
C) Interest rate decreases because the interest income on its assets will rise more than the interest expenses on its liabilities and net interest income will rise. 
D) Interest rate decreases because the interest income on its assets will fall more than the interest expenses on its liabilities and net interest income will fall. 
A) Interest rate increases because the interest income on its assets will rise more than the interest expenses on its liabilities and net interest income will rise. 
B) Interest rate increases because the interest income on its assets will fall more than the interest expenses on its liabilities and net interest income will fall. 
C) Interest rate decreases because the interest income on its assets will rise more than the interest expenses on its liabilities and net interest income will rise. 
D) Interest rate decreases because the interest income on its assets will fall more than the interest expenses on its liabilities and net interest income will fall.

Question 11

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 12

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 13

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 14

Which of the following are rate-sensitive liabilities?

Accepted Answer

A) Short-term consumer loans, cheque accounts and three-month Treasury notes. 
B) Three-month term deposits, three month bankers' acceptances, six-month negotiable certificates of deposit and one-year term deposits. 
C) Short-term consumer loans, six-month negotiable certificates of deposit and one-year term deposits. 
D) Short-term consumer loans, six-month Treasury notes and three-year Treasury bonds. 
A) Short-term consumer loans, cheque accounts and three-month Treasury notes. 
B) Three-month term deposits, three month bankers' acceptances, six-month negotiable certificates of deposit and one-year term deposits. 
C) Short-term consumer loans, six-month negotiable certificates of deposit and one-year term deposits. 
D) Short-term consumer loans, six-month Treasury notes and three-year Treasury bonds.

Question 15

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

Accepted Answer

The answer of The Reserve Bank of Australia's (RBA) monetary...

Question 16

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 17

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 18

Because the repricing model ignores the market value effect of changing interest rates, the repricing gap is an incomplete measure of the true interest rate risk exposure of an FI.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is true?

Accepted Answer

A) APRA requires smaller Australian FIs to use the repricing gap method to estimate interest rate exposures in their banking book for capital adequacy. 
B) Australian FIs are only required to use the repricing gap method if they are listed on an US stock exchange. 
C) APRA does not require Australian FIs to use the repricing gap method to estimate interest rate exposures in their banking book for capital adequacy. 
D) Australian FIs are only required to use the repricing gap if they are internationally active. 
A) APRA requires smaller Australian FIs to use the repricing gap method to estimate interest rate exposures in their banking book for capital adequacy. 
B) Australian FIs are only required to use the repricing gap method if they are listed on an US stock exchange. 
C) APRA does not require Australian FIs to use the repricing gap method to estimate interest rate exposures in their banking book for capital adequacy. 
D) Australian FIs are only required to use the repricing gap if they are internationally active.

The repricing gap approach calculates the gaps in each maturity bucket by subtracting the:

The repricing model ignores information regarding the distribution of assets and liabilities within maturity buckets.This limitation of the model refers to:

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?

Which of the following statements is true?

Which of the following statements is true?

The term core deposits refers to those deposits that:

Which of the following statements is true?

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?

The bank has a positive repricing gap.Is it exposed to interest rate increases or decreases and why?

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

What is spread effect?

Which of the following statements is true?

Which of the following are rate-sensitive liabilities?

Which of the following statements is true?

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

Because the repricing model ignores the market value effect of changing interest rates, the repricing gap is an incomplete measure of the true interest rate risk exposure of an FI.

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

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

The repricing gap approach calculates the gaps in each maturity bucket by subtracting the:

The repricing model ignores information regarding the distribution of assets and liabilities within maturity buckets.This limitation of the model refers to:

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?

Which of the following statements is true?

Which of the following statements is true?

The term core deposits refers to those deposits that:

Which of the following statements is true?

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?

The bank has a positive repricing gap.Is it exposed to interest rate increases or decreases and why?

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

What is spread effect?

Which of the following statements is true?

Which of the following are rate-sensitive liabilities?

Which of the following statements is true?

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

Because the repricing model ignores the market value effect of changing interest rates, the repricing gap is an incomplete measure of the true interest rate risk exposure of an FI.

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

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