Question 1

How do you interpret the position of an FI with a positive on-balance-sheet gap and a negative 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 increase and made a mistake in setting its gap for off-balance-sheet activities. 
D) The FI believes that interest rates will increase 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 increase and made a mistake in setting its gap for off-balance-sheet activities. 
D) The FI believes that interest rates will increase and made a mistake in setting its gap for on-balance-sheet activities.

Question 2

Consider the following table:   What is the one-year gap adjusted for runoffs?

Accepted Answer

A) $43 
B) $87 
C) $121 
D) $78 
A) $43 
B) $87 
C) $121 
D) $78

Question 3

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.

Question 4

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 5

The repricing gap is a book-value based approach.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Over-aggregation and runoffs are the major problems associated with the repricing gap.

Accepted Answer

A) True 
 B)False

Question 8

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.

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.

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

Consider the following table: What is the one-year gap adjusted for runoffs?

Which of the following statements is true?

Which of the following statements is true?

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?

Over-aggregation and runoffs are the major problems associated with the repricing gap.

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

The liquidity premium 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

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

Consider the following table: What is the one-year gap adjusted for runoffs?

Which of the following statements is true?

Which of the following statements is true?

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?

Over-aggregation and runoffs are the major problems associated with the repricing gap.

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

The liquidity premium 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