Consider the following repricing buckets and gaps: \[\begin{array} { | l | r | r | r | } \hline \text { Repricing bucket } &{ \text { Assets } } & { \text { Liabilities } } & { \text { Gaps } } \\ \hline \text { 1 day } & \$ 50000 & \$ 120000 & - \$ 70000 \\ \hline \text { 1 day to 3 months } & \$ 100000 & \$ 70000 & \$ 30000 \\ \hline \text { 3 to 6 months } & \$ 100000 & \$ 100000 & \$ 0 \\ \hline \text { 6 to 12 months } & \$ 250000 & \$ 80000 & \$ 170000 \\ \hline 1 \text { to 5 years } & \$ 75000 & \$ 130000 & - \$ 55000 \\ \hline \text { Over 5 years } & \$ 25000 & \$ 100000 & - \$ 75000 \\ \hline \end{array}\] 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 within one year is an increase of 100 basis points?

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

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 will be the FI's net interest income at year-end if interest rates do not change?

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

Exam 5: Interest Rate Risk Measurement: The Repricing Model

The cumulative repricing gap position of an FI for a given extended time period is the sum of the repricing gap values for the individual time periods that make up the extended time period.

(True/False)

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Question 21

If the spread between rate-sensitive assets and rate-sensitive liabilities increases for a bank, future changes in interest rates will lead to an increase in net interest income.

(True/False)

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Question 22

Consider the following repricing buckets and gaps: Repricing bucket Assets Liabilities Gaps 1 day \ 50000 \ 120000 -\ 70000 1 day to 3 months \ 100000 \ 70000 \ 30000 3 to 6 months \ 100000 \ 100000 \ 0 6 to 12 months \ 250000 \ 80000 \ 170000 1 to 5 years \ 75000 \ 130000 -\ 55000 Over 5 years \ 25000 \ 100000 -\ 75000 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?

(Multiple Choice)

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Question 23

Which of the following statements is true?

(Multiple Choice)

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Question 24

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.

(Essay)

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Question 25

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 will be the FI's net interest income at year-end if interest rates do not change?

(Multiple Choice)

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Question 26

Which of the following statements is true?

(Multiple Choice)

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Question 27

Convexity is the major problem associated with the repricing gap.

(True/False)

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Question 28

The cumulative gap over the whole balance sheet by definition:

(Multiple Choice)

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Question 29

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.

(True/False)

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Question 30

Which of the following statements is true?

(Multiple Choice)

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Question 31

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

(Multiple Choice)

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Question 32

Which of the following statements is true?

(Multiple Choice)

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Question 33

Which of the following are rate-sensitive liabilities?

(Multiple Choice)

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Question 34

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

(Multiple Choice)

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Question 35

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?

(Multiple Choice)

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Question 36

The term 'runoffs' refers to:

(Multiple Choice)

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Question 37

Interest rate spread is the difference between the earning assets interest rate and cash rate set by RBA.

(True/False)

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Question 38

In the last quarter ABC Bank reported the following repricing buckets: Repricing buckets Assets Liabilities 1 day \ 50 \ 100 1 day to 3 months \ 120 \ 25 3 months to 6 months \ 35 \ 100 6 months to 12 months \ 65 \ 75 1 year to 5 years \ 70 \ 40 Over 5 years \ 60 \ 60 Calculate the repricing gaps for each maturity bucket and the cumulative gaps

(Essay)

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Question 39

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.

(True/False)

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Question 40

The cumulative repricing gap position of an FI for a given extended time period is the sum of the repricing gap values for the individual time periods that make up the extended time period.

If the spread between rate-sensitive assets and rate-sensitive liabilities increases for a bank, future changes in interest rates will lead to an increase in net interest income.

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.

Which of the following statements is true?

Convexity is the major problem associated with the repricing gap.

The cumulative gap over the whole balance sheet by definition:

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 true?

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

Which of the following statements is true?

Which of the following are rate-sensitive liabilities?

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

The term 'runoffs' refers to:

Interest rate spread is the difference between the earning assets interest rate and cash rate set by RBA.

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.

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

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