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

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Question 81

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

A) It should rise by 0.60 percent.
B) It should rise by 2 percent.
C) It should rise by 4 percent.
D) It should rise by 1 percent.
E) It should not show any rise.

F) A) and B)
G) C) and D)

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Question 82

Multiple Choice

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Loyola Bank classifies its assets and liabilities and the period (maturity buckets) within which they are subject to repricing as on March 31,2015 as follows: $\begin{array} { l c c } \text { (dollars in millions) } & \text { Interest-sensitive } & \text { Interest-sensitive } \\\text { Maturity buckets } & \text { assets } & \text { liabilities } \\\text { One week } & \$ 50 & \$ 45 \\8 \text { to 25 days } & 75 & 70 \\25 \text { to } 40 \text { days } & 60 & 75 \\40 \text { to } 60 \text { days } & 70 & 80 \\60 \text { to } 90 \text { days } & 80 & 70 \\90 \text { to } 180 \text { days } & 180 & 160 \\180 \text { to } 365 \text { days } & 210 & 190\end{array}$ What is the interest-sensitivity ratio of the bank for the 90 to 180 days maturity bucket?

A) 0.82
B) 0.88
C) 0.91
D) 0.92
E) 0.85

F) A) and C)
G) D) and E)

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Question 83

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One part of interest-rate risk is ____________________.This part of interest-rate risk reflects that as interest rates fall,any cash flows that are received are invested at a lower interest rate.

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 weighted interest-sensitive gap for this bank?

A bank's IS GAP is defined as:

The duration of a bond is the weighted average maturity of the future cash flows expected to be received on a bond.Which of the following statements concerning duration is true?

If interest rates on both assets and liabilities decrease by 2 percent in the next 90 days,what should happen to this bank's net interest margin?

Interest-sensitive gap,relative interest-sensitive gap,and the interest-sensitivity ratio will often reach different conclusions as to whether the bank is asset or liability sensitive.

A(n)__________________________ gap means that for a parallel increase in all interest rates,the market value of net worth will tend to decline.

The Raymond Burr National Bank has $1,000 in assets with an average duration of 5 years.This bank has $800 in liabilities with an average duration of 6.25 years.What is the duration gap of this bank?

A bank has an average asset duration of 5 years and an average liability duration of 3 years.This bank has total assets of $500 million and total liabilities of $250 million.Currently,market interest rates are 10 percent.If interest rates fall by 2 percent (to 8 percent) ,what is this bank's change in net worth?

If interest rates on both assets and liabilities fall by 2 percent in the next 90 days,what should happen to this bank's net interest margin?

Repriceable liabilities include long-term savings and retirement accounts.

Which of the following statements concerning a bank's leverage-adjusted duration gap is true?

A financial institution is liability sensitive,if its interest-sensitive liabilities are less than its interest-sensitive assets.