Question 1

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. D

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 B

Question 3

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 A

Question 4

CGAP effect is the relationship between changes in interest rates and changes in FI's liabilities.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 7

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 8

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 9

The repricing gap is a book-value based approach.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is true?

Accepted Answer

A) As opposed to the duration gap model, the repricing gap model captures the capital loss and capital gain effect. 
B) The repricing gap model is a market-value based approach, while the duration model is a book-value based approach. 
C) The repricing gap model does not consider the size and timing of cash flows. 
D) The duration gap model focuses on the impact interest rate changes have on an FI's net interest income. 
A) As opposed to the duration gap model, the repricing gap model captures the capital loss and capital gain effect. 
B) The repricing gap model is a market-value based approach, while the duration model is a book-value based approach. 
C) The repricing gap model does not consider the size and timing of cash flows. 
D) The duration gap model focuses on the impact interest rate changes have on an FI's net interest income.

Question 11

Consider the following repricing buckets and gaps: \(\begin{array}{c}
\begin{array}{|l|}
\hline \text { Repricing bucket }\
\hline 1 \text { day } \
\hline 1 \text { day to } 3 \text { months } \
\hline 3 \text { to } 6 \text { months } \
\hline 6 \text { to } 12 \text { months } \
\hline 1 \text { to } 5 \text { years } \
\hline \text { Over } 5 \text { years } \
\hline
\end{array}
\begin{array}{r|}
\hline\text { Assets } \
\hline \$ 50000 \
\hline \$ 100000 \
\hline \$ 100000 \
\hline \$ 250000 \
\hline 575000 \
\hline 325000 \
\hline 
\end{array}
\begin{array}{|r|}
\hline\text { Liabilities }\
\hline \$ 120000 \
\hline \$ 70000 \
\hline \$ 100000 \
\hline \$ 80000 \
\hline \$ 130000 \
\hline \$ 100000 \
\hline 
\end{array}
\begin{array}{r|}
\hline\text { Gaps }\
\hline-\$ 70000 \
\hline \$ 30000 \
\hline \$ 0 \
\hline \$ 170000 \
\hline-\$ 55000 \
\hline-\$ 75000 \
\hline
\end{array} 
\begin{array}{r|}
\hline\text { Cumulative gap }\
\hline-\$ 70000 \
\hline-\$ 40000 \
\hline-\$ 40000 \
\hline \$ 130000 \
\hline \$ 75000 \
\hline \$ 0 \
\hline
\end{array}
\end{array}\)

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) $75 000 
C) $0 
D) Not enough information to answer the question. 
A) $7500 
B) $75 000 
C) $0 
D) Not enough information to answer the question.

Question 12

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

Accepted Answer

A) $0 
B) $50 
C) $55 
D) $5 
A) $0 
B) $50 
C) $55 
D) $5

Question 13

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 14

Consider the following information to answer the question: $$\begin{array} { | l | l | l | l | l | l | } 
\hline \text { Assets } & \text { Amount } & \text { Rate } & \text { Liabilities } & \text { Amount } & \text { Rate } \
\hline \text { Rate } & \$ 35000000 & 10 \% & \text { Rate } & \$ 40000000 & 8 \% \
\hline \text { Sensitive } & & & \text { Sensitive } & & \
\hline \text { Fixed rate } & \$ 21000000 & 9 \% & \text { Fixed rate } & \$ 12000000 & 7 \% \
\hline \text { Non-earning } & \$ 4000000 & & \text { Equity } & \$ 8000000 & \
\hline
\end{array}$$ What is the repricing gap for the FI?

Accepted Answer

A) $0 
B) $5,000,000 
C) $9,800,000 
D) -$5,000,000 
A) $0 
B) $5,000,000 
C) $9,800,000 
D) -$5,000,000

Question 15

The term 'rate-sensitive assets' refers to assets whose interest rate will be repriced over some future period.

Accepted Answer

A) True 
 B)False

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

Would you consider the repricing model to be a good and well-founded interest rate risk measurement and management tool? Why or why not?

Accepted Answer

The repricing gap is a measure of intere

Question 18

The bank has a negative 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 rise by less 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 rise by less 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 rise by less 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 rise by less than the interest expenses on its liabilities and net interest income will fall.

Question 19

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 20

Which of the following statements is true?

Accepted Answer

A) One problem with the repricing gap is over-aggregation, which means that while the dollar value of asset-sensitive liabilities and assets within one bucket might be the same, the repricing timing for assets and liabilities within this bucket might differ. 
B) One problem with the repricing gap is over-aggregation, which means that managers cannot make informed decisions about interest rate movements. 
C) An advantage of the repricing gap is over-aggregation, which means that the information provided in the buckets is precise. 
D) None of the listed options are correct. 
A) One problem with the repricing gap is over-aggregation, which means that while the dollar value of asset-sensitive liabilities and assets within one bucket might be the same, the repricing timing for assets and liabilities within this bucket might differ. 
B) One problem with the repricing gap is over-aggregation, which means that managers cannot make informed decisions about interest rate movements. 
C) An advantage of the repricing gap is over-aggregation, which means that the information provided in the buckets is precise. 
D) None of the listed options are correct.

Which of the following statements is true?

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

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

CGAP effect is the relationship between changes in interest rates and changes in FI's liabilities.

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

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

Which of the following statements is true?

Which of the following statements is true?

The repricing gap is a book-value based approach.

Which of the following statements is true?

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

Which of the following statements is true?

Consider the following information to answer the question: Assets Amount Rate Liabilities Amount Rate Rate \ 35000000 10\% Rate \ 40000000 8\% Sensitive Sensitive Fixed rate \ 21000000 9\% Fixed rate \ 12000000 7\% Non-earning \ 4000000 Equity \ 8000000 What is the repricing gap for the FI?

The term 'rate-sensitive assets' refers to assets whose interest rate will be repriced over some future period.

Which of the following statements is true?

Would you consider the repricing model to be a good and well-founded interest rate risk measurement and management tool? Why or why not?

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

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

Which of the following statements is true?

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks of Financial Institutions

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off-Balance-Sheet Instruments

Managing Interest Rate Risk Using Securitisation

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 Risks

Capital Management and Adequacy

Filters

Exam 5: Interest Rate Risk Measurement: The Repricing Model

Which of the following statements is true?

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

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

CGAP effect is the relationship between changes in interest rates and changes in FI's liabilities.

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

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

Which of the following statements is true?

Which of the following statements is true?

The repricing gap is a book-value based approach.

Which of the following statements is true?

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

Which of the following statements is true?

Consider the following information to answer the question: Assets Amount Rate Liabilities Amount Rate Rate \ 35000000 10\% Rate \ 40000000 8\% Sensitive Sensitive Fixed rate \ 21000000 9\% Fixed rate \ 12000000 7\% Non-earning \ 4000000 Equity \ 8000000 What is the repricing gap for the FI?

The term 'rate-sensitive assets' refers to assets whose interest rate will be repriced over some future period.

Which of the following statements is true?

Would you consider the repricing model to be a good and well-founded interest rate risk measurement and management tool? Why or why not?

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

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

Which of the following statements is true?

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks of Financial Institutions

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off-Balance-Sheet Instruments

Managing Interest Rate Risk Using Securitisation

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 Risks

Capital Management and Adequacy

Filters