Question 1

The Third National Bank of Edmond reports a net interest margin of 5.83 percent.It has total interest revenues of $275 million and total interest expenses of $210 million.This bank has earnings assets of $1,115.Suppose this bank's interest revenues rise by 8 percent and its interest expenses and earnings assets rise by 10 percent next year,what is this bank's new net interest margin?

Accepted Answer

A) 5.83 percent 
B) 7.09 percent 
C) 3.59 percent 
D) 5.38 percent 
E) 7.80 percent

Question 2

Interest-sensitive gap techniques do not consider the impact of changing interest rates on stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 3

Banks with a positive cumulative interest-sensitive gap will benefit if interest rates rise,but lose income if interest rates decline.

Accepted Answer

A) True 
 B)False

Question 4

Duration is a direct measure of the price risk but not the reinvestment risk of a bond.

Accepted Answer

A) True 
 B)False

Question 5

The bank's __________________________ takes into account the idea that the speed (sensitivity)of interest rate changes will differ for different types of assets and liabilities.

Accepted Answer

The answer of The bank's __________________________ takes into account the...

Question 6

The __________________________ is the rate of return on a financial instrument using a 360-day year relative to the instrument's face value.

Accepted Answer

The answer of The __________________________ is the rate of return...

Question 7

One of the principal goals of asset-liability management is to maximize or at least stabilize a bank's margin or spread.

Accepted Answer

A) True 
 B)False

Question 8

A bank is liability sensitive,if its:

Accepted Answer

A) deposits and non-deposit borrowings are not affected by changes in interest rates. 
B) interest-sensitive assets exceed its interest-sensitive liabilities. 
C) interest-sensitive liabilities exceed its interest-sensitive assets. 
D) loans and securities are affected by changes in interest rates. 
E) None of the options is correct.

Question 9

A bank has an average duration for its asset portfolio of 5.5 years.The bank has total assets of $1,000 million and total liabilities of $750 million.If this bank's leverage-adjusted duration gap is zero,what must be the duration of its liabilities portfolio?

Accepted Answer

A) 7.33 years 
B) 4.125 years 
C) 7.5 years 
D) 5.5 years 
E) None of the options is correct.

Question 10

The ultimate goal of liability management is to gain control over a financial institution's sources of funds.

Accepted Answer

A) True 
 B)False

Question 11

A bond has a face value of $1,000 and coupon payments of $120 annually.This bond matures in three years and is selling in the market for $1,160.Market interest rate is 6 percent.What is this bond's duration?

Accepted Answer

A) 3 years 
B) 5.71 years 
C) 1.96 years 
D) 2.71 years 
E) None of the options is correct.

Question 12

The __________________________ is equal to the duration of each individual type of liability in the portfolio weighted by the market value of each type of liability in the portfolio out of the total market value of all liabilities.

Accepted Answer

The answer of The __________________________ is equal to the duration...

Question 13

If Fifth National Bank's asset duration exceeds its liability duration and if interest rates rise,the bank's net worth will _________________.

Accepted Answer

A) decrease 
B) increase 
C) stabilize 
D) be unaffected 
E) None of the options is correct.

Question 14

A bank has Federal Funds totaling $25 million with an interest-rate sensitivity weight of 1.0.This bank also has loans of $105 million and investments of $65 million with interest rate sensitivity weights of 1.40 and 1.15 respectively.It also has $135 million in interest-bearing deposits with an interest rate sensitivity weight of 0.90 and other money market borrowings of $75 million with an interest rate sensitivity weight of 1.0.What is the dollar interest-sensitive gap for this bank?

Accepted Answer

A) $50.25 million 
B) -$15 million 
C) -$50.25 million 
D) $34.25 million 
E) None of the options is correct.

Question 15

One of the government-created giant mortgage banking firm which has subsequently been privatized is the ____________________________________.

Accepted Answer

The answer of One of the government-created giant mortgage banking...

Question 16

Financial firms devote greater attention to opening up new sources of funding and monitoring the mix and cost of their deposit and non-deposit liabilities under the _______________________ strategy.

Accepted Answer

A) asset management 
B) liabilities management 
C) interest-sensitive gap management 
D) weighted gap management 
E) duration gap management

Question 17

A treasury bill currently selling for $9,845,has a face value of $10,000 and has 46 days to maturity.What is the yield to maturity equivalent on this security?

Accepted Answer

A) 12.49 percent 
B) 12.13 percent 
C) 12.30 percent 
D) 2 percent 
E) None of the options is correct.

Question 18

The relationship between a change in an asset's price and an asset's change in the yield or interest rate is captured by _________________________.

Accepted Answer

The answer of The relationship between a change in an...

Question 19

Interest sensitive assets divided by interest sensitive liabilities is known as: ____________________________.

Accepted Answer

The answer of Interest sensitive assets divided by interest sensitive...

Question 20

The assets and liabilities of Finacle Bank as on December 31,2015,are as follows:
$20,000 of short-term securities issued by governments and private borrowers (about to mature),$12,000 of borrowings from the money market,$15,000 of short-term savings accounts,$12,000 of variable-rate loans and securities,$18,000 of long-term loans made at a fixed interest rate,$25,000 of long-term savings and retirement accounts,$22,000 of deposits in the Central Bank (held as legal reserves),$550,000 of equity capital provided by the bank's owners,and $500,000 of building and equipment.
What is the total of repriceable assets held by the bank as on December 31,2015?

Accepted Answer

A) $32,000 
B) $50,000 
C) $45,000 
D) $55,000 
E) $52,000

Exam 7: Risk Management for Changing Interest Rates: Asset-Liability Management and Duration Techniques

Interest-sensitive gap techniques do not consider the impact of changing interest rates on stockholders' equity.

Banks with a positive cumulative interest-sensitive gap will benefit if interest rates rise,but lose income if interest rates decline.

Duration is a direct measure of the price risk but not the reinvestment risk of a bond.

The bank's __________________________ takes into account the idea that the speed (sensitivity)of interest rate changes will differ for different types of assets and liabilities.

The __________________________ is the rate of return on a financial instrument using a 360-day year relative to the instrument's face value.

One of the principal goals of asset-liability management is to maximize or at least stabilize a bank's margin or spread.

A bank is liability sensitive,if its:

A bank has an average duration for its asset portfolio of 5.5 years.The bank has total assets of $1,000 million and total liabilities of $750 million.If this bank's leverage-adjusted duration gap is zero,what must be the duration of its liabilities portfolio?

The ultimate goal of liability management is to gain control over a financial institution's sources of funds.

A bond has a face value of $1,000 and coupon payments of $120 annually.This bond matures in three years and is selling in the market for $1,160.Market interest rate is 6 percent.What is this bond's duration?

The __________________________ is equal to the duration of each individual type of liability in the portfolio weighted by the market value of each type of liability in the portfolio out of the total market value of all liabilities.

If Fifth National Bank's asset duration exceeds its liability duration and if interest rates rise,the bank's net worth will _________________.

One of the government-created giant mortgage banking firm which has subsequently been privatized is the ____________________________________.

Financial firms devote greater attention to opening up new sources of funding and monitoring the mix and cost of their deposit and non-deposit liabilities under the _______________________ strategy.

A treasury bill currently selling for $9,845,has a face value of $10,000 and has 46 days to maturity.What is the yield to maturity equivalent on this security?

The relationship between a change in an asset's price and an asset's change in the yield or interest rate is captured by _________________________.

Interest sensitive assets divided by interest sensitive liabilities is known as: ____________________________.