Question 1

8-30 The maturity of a portfolio of assets or liabilities is a weighted average of the maturities of the assets or liabilities that comprise that portfolio.

Accepted Answer

A) True 
 B)False

Question 2

8-86 What is this FI's maturity gap?

Accepted Answer

A)  4.00 years.
B)  4.28 years.
C)  3.16 years.
D)  4.06 years.
E)  5.10 years.F) B) and E)
G) C) and D)

Question 3

8-87 What is market value of the one-year bond if all market interest rates increase by 2 percent?

Accepted Answer

A)  $60.000 million.
B)  $60.566 million.
C)  $59.444 million.
D)  $58.899 million.
E)  $61.142 million.F) A) and E)
G) C) and D)

Question 4

8-77 Suppose short-term interest rates increase by 1 percent.Calculate the change in net interest income after the interest rate increase.

Accepted Answer

A)  $50,000.
B)  $18,900.
C)  $40,400.
D)  $53,900.
E)  $32,000.F) A) and B)
G) B) and E)

Question 5

8-6 In the repricing gap model,assets or liabilities are rate sensitive within a given time period if the dollar values of each are subject to receiving a different interest rate should market rates change.

Accepted Answer

A) True 
 B)False

Question 6

8-18 Because the repricing model ignores the market value effect of changing interest rates,the repricing gap is an incomplete measure of the true interest rate risk exposure of an FI.

Accepted Answer

A) True 
 B)False

Question 7

8-59 Which of the following statements is true?

Accepted Answer

A)  An increase in interest rates leads to an increase in the market value of financial securities.
B)  Value of longer term securities decreases at a diminishing rate for increases in interest rates.
C)  Value of longer term securities increases at an increasing rate for any decline in interest rates.
D)  The shorter the maturity of a fixed income asset or liability,the greater the fall in market value for any given interest rate increase.
E)  The longer the maturity of a fixed income asset or liability,the greater the fall in market value for any given interest rate decrease.F) B) and D)
G) A) and C)

Question 8

8-54 A method of measuring the interest rate or gap exposure of an FI is

Accepted Answer

A)  the duration model.
B)  the maturity model.
C)  the repricing model.
D)  the funding gap model.
E)  All of the above.F) A) and E)
G) A) and C)

Question 9

8-22 The runoff component of long-term mortgages should be considered in the time buckets in which the maturities actually occur.

Accepted Answer

A) True 
 B)False

Question 10

8-33 The maturity gap for a bank is the average maturity of the assets minus the average maturity of the liabilities.

Accepted Answer

A) True 
 B)False

Question 11

8-34 The net worth of a bank is the difference between the

Accepted Answer

A)  value of retained earnings and the provision for loan losses.
B)  market value of assets and the market value of liabilities.
C)  book value of assets and book value of liabilities.
D)  rate-sensitive assets and rate-sensitive liabilities.
E)  None of the above.F) B) and E)
G) A) and B)

Question 12

8-7 The repricing model is a simplistic approach to focusing on the exposure of net interest income to changes in market levels of interest rates for given maturity periods.

Accepted Answer

A) True 
 B)False

Question 13

8-3 The repricing gap model is a book value accounting based model.

Accepted Answer

A) True 
 B)False

Question 14

8-67 Suppose that interest rates rise by 2 percent on both RSAs and RSLs.The expected annual change in net interest income of the bank is

Accepted Answer

A)  -$300,000.
B)  $500,000.
C)  -$2,800,000.
D)  -$3,000,000.
E)  $300,000.F) A) and B)
G) A) and C)

Question 15

8-36 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.
E)  current liabilities from tangible assets.F) C) and E)
G) A) and B)

Question 16

8-69 Use the repricing model to determine the funding gap for a maturity bucket of 91 days.

Accepted Answer

A)  -$60 million.
B)  -$150 million.
C)  $0.
D)  -$250 million.
E)  -$300 million.F) C) and D)
G) A) and B)

Question 17

8-13 One reason to include demand deposits when estimating a bank's repricing gap is because rising interest rates could lead to high withdrawals.

Accepted Answer

A) True 
 B)False

Question 18

8-48 If an FI's repricing gap is less than zero,then

Accepted Answer

A)  it is deficient in its required reserves.
B)  it is deficient in its capital ratio requirement.
C)  its liability costs are more sensitive to changing market interest rates than are its asset yields.
D)  its liability costs are less sensitive to changing market interest rates than are its asset yields.
E)  the duration of the FI's liabilities exceeds the duration of FI's assets.F) None of the above
G) D) and E)

Question 19

8-12 A bank with a negative repricing (or funding)gap faces refinancing risk.

Accepted Answer

A) True 
 B)False

Question 20

8-90 What is market value of the two-year CD if all market interest rates increase by 2 percent?

Accepted Answer

A)  $40.381 million.
B)  $39.626 million.
C)  $40.000 million.
D)  $38.750 million.
E)  $40.769 million.F) A) and D)
G) C) and E)

Exam 8: Interest Rate Risk I

8-36 The repricing gap approach calculates the gaps in each maturity bucket by subtracting the

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8-87 What is market value of the one-year bond if all market interest rates increase by 2 percent?

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8-48 If an FI's repricing gap is less than zero,then

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8-69 Use the repricing model to determine the funding gap for a maturity bucket of 91 days.

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8-90 What is market value of the two-year CD if all market interest rates increase by 2 percent?

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8-6 In the repricing gap model,assets or liabilities are rate sensitive within a given time period if the dollar values of each are subject to receiving a different interest rate should market rates change.

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8-13 One reason to include demand deposits when estimating a bank's repricing gap is because rising interest rates could lead to high withdrawals.

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8-12 A bank with a negative repricing (or funding)gap faces refinancing risk.

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8-34 The net worth of a bank is the difference between the

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8-22 The runoff component of long-term mortgages should be considered in the time buckets in which the maturities actually occur.

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8-30 The maturity of a portfolio of assets or liabilities is a weighted average of the maturities of the assets or liabilities that comprise that portfolio.

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8-33 The maturity gap for a bank is the average maturity of the assets minus the average maturity of the liabilities.

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8-7 The repricing model is a simplistic approach to focusing on the exposure of net interest income to changes in market levels of interest rates for given maturity periods.

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8-67 Suppose that interest rates rise by 2 percent on both RSAs and RSLs.The expected annual change in net interest income of the bank is

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8-18 Because the repricing model ignores the market value effect of changing interest rates,the repricing gap is an incomplete measure of the true interest rate risk exposure of an FI.

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8-54 A method of measuring the interest rate or gap exposure of an FI is

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8-86 What is this FI's maturity gap?

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8-59 Which of the following statements is true?

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8-3 The repricing gap model is a book value accounting based model.

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8-77 Suppose short-term interest rates increase by 1 percent.Calculate the change in net interest income after the interest rate increase.

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