Question 1

Brendon Brothers Bank reports interest-sensitive assets at $35 million,interest-sensitive liabilities at $60 million and total assets at $80 million.What is the relative IS GAP of the bank?

Accepted Answer

A) -0.29 
B) 0.29 
C) -0.31 
D) 0.31 
E) -0.33

Question 2

__________________ is the weighted average maturity for a stream of future cash flows.

Accepted Answer

The answer of __________________ is the weighted average maturity for...

Question 3

Recent decades have ushered in dramatic changes in banking.The goal of __________________ was simply to gain control of the bank's sources of funds.

Accepted Answer

The answer of Recent decades have ushered in dramatic changes...

Question 4

Money market deposits are included as part of ______________________ for banks.

Accepted Answer

The answer of Money market deposits are included as part...

Question 5

A treasury bill currently sells for $9,845,has a face value of $10,000 and has 46 days to maturity.What is the bank discount rate 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 6

Bankers cannot determine the level or trend of market interest rates;instead,they can only react to the level and trend of rates.

Accepted Answer

A) True 
 B)False

Question 7

In recent decades,banks have aggressively sought to insulate their assets and liability portfolios and profits from the ravages of changing interest rates.Many banks now conduct their asset-liability management strategy with the help of a(n)_____________________.

Accepted Answer

The answer of In recent decades,banks have aggressively sought to...

Question 8

__________________________ is the risk due to changes in market interest rates which can adversely affect the bank's net interest margin,assets,liabilities,and equity.

Accepted Answer

The answer of __________________________ is the risk due to changes...

Question 9

Which of the following would be an example of a nonrepriceable asset?

Accepted Answer

A) Money the bank has borrowed from the money market 
B) Cash in the vault 
C) Demand deposits that do not pay an interest rate 
D) Short term securities issued by the government about to mature 
E) All of the options are correct.

Question 10

The __________________________ is equal to the duration of each individual type of asset weighted by the market value of each type of asset out of the total market value of all assets.

Accepted Answer

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

Question 11

If interest rates on both assets and liabilities rise by 2 percent in the next 90 days,what would be the bank's net interest margin?

Accepted Answer

A) 4 percent 
B) 4.4 percent 
C) 4.6 percent 
D) 2.4 percent 
E) 6 percent

Question 12

A bank with a negative interest-sensitive GAP:

Accepted Answer

A) has a greater dollar volume of interest-sensitive liabilities than interest-sensitive assets. 
B) will generate a higher interest margin if interest rates rise. 
C) will generate a lower interest margin if interest rates fall. 
D) has assets and liabilities with the same duration. 
E) has liabilities with a greater duration than its assets.

Question 13

A(n)__________________________ means that the bank has more interest-sensitive liabilities than interest-sensitive assets.

Accepted Answer

The answer of A(n)__________________________ means that the bank has more...

Question 14

Convexity is a direct measure of the price risk of a bond.

Accepted Answer

A) True 
 B)False

Question 15

A bond is selling in the market for $950 and has a duration of 6 years.Market interest rates are 9 percent and are expected to decrease to 7 percent in the near future.What will this bond's price be after the change in market interest rates?

Accepted Answer

A) $969 
B) $931 
C) $1,055 
D) $854 
E) $950

Question 16

If a bank has a positive interest-sensitive gap,one of the possible management responses would be to:

Accepted Answer

A) wait for the interest rates to rise or be stable. 
B) shorten asset maturities. 
C) decrease interest-sensitive liabilities. 
D) increase interest-sensitive assets. 
E) extend liability maturities.

Question 17

A bank with a duration gap of zero is immunized against changes in the value of net worth due to changes in interest rates in the market.

Accepted Answer

A) True 
 B)False

Question 18

A bond has a face value of $1,000 and five years to maturity.This bond has a coupon rate of 13 percent and is selling in the market today for $902.Coupon payments are made annually on this bond.What is the yield to maturity (YTM)for this bond?

Accepted Answer

A) 13 percent 
B) 12.75 percent 
C) 16 percent 
D) 11.45 percent 
E) 12 percent

Question 19

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.What will be the bank's earning assets total?

Accepted Answer

A) $4,717 million 
B) $3,602 million 
C) $1,115 million 
D) $3,790 million 
E) None of the options is correct.

Question 20

If a bank's interest-sensitive assets and liabilities are equal,then its interest revenues from assets and funding costs from liabilities will change in the same proportion relative to changes in market interest rates.

Accepted Answer

A) True 
 B)False

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

Brendon Brothers Bank reports interest-sensitive assets at $35 million,interest-sensitive liabilities at $60 million and total assets at $80 million.What is the relative IS GAP of the bank?

__________________ is the weighted average maturity for a stream of future cash flows.

Recent decades have ushered in dramatic changes in banking.The goal of __________________ was simply to gain control of the bank's sources of funds.

Money market deposits are included as part of ______________________ for banks.

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

Bankers cannot determine the level or trend of market interest rates;instead,they can only react to the level and trend of rates.

In recent decades,banks have aggressively sought to insulate their assets and liability portfolios and profits from the ravages of changing interest rates.Many banks now conduct their asset-liability management strategy with the help of a(n)_____________________.

__________________________ is the risk due to changes in market interest rates which can adversely affect the bank's net interest margin,assets,liabilities,and equity.

Which of the following would be an example of a nonrepriceable asset?

The __________________________ is equal to the duration of each individual type of asset weighted by the market value of each type of asset out of the total market value of all assets.

If interest rates on both assets and liabilities rise by 2 percent in the next 90 days,what would be the bank's net interest margin?

A bank with a negative interest-sensitive GAP:

A(n)__________________________ means that the bank has more interest-sensitive liabilities than interest-sensitive assets.

Convexity is a direct measure of the price risk of a bond.

A bond is selling in the market for $950 and has a duration of 6 years.Market interest rates are 9 percent and are expected to decrease to 7 percent in the near future.What will this bond's price be after the change in market interest rates?

If a bank has a positive interest-sensitive gap,one of the possible management responses would be to:

A bank with a duration gap of zero is immunized against changes in the value of net worth due to changes in interest rates in the market.

A bond has a face value of $1,000 and five years to maturity.This bond has a coupon rate of 13 percent and is selling in the market today for $902.Coupon payments are made annually on this bond.What is the yield to maturity (YTM) for this bond?

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.What will be the bank's earning assets total?

If a bank's interest-sensitive assets and liabilities are equal,then its interest revenues from assets and funding costs from liabilities will change in the same proportion relative to changes in market interest rates.