Exam 5: Interest Rate Risk Measurement: The Repricing Model

Correct Answer

verified

Show Answer

A) Periodic cash flow of interest and principal amortisation payments on long-term assets that can be reinvested at market rates.
B) The effect that a change in the spread between rates on rate-sensitive assets and rate-sensitive liabilities has on net interest income as interest rates change.
C) The effect of mismatch of asset and liabilities within a maturity bucket.
D) The premium paid to compensate for the future uncertainty in a security's value.

Correct Answer

verified

Show Answer

A) difference between rate-sensitive assets and rate-sensitive liabilities
B) sum of rate-sensitive assets and rate-sensitive liabilities
C) difference between rate-sensitive liabilities and rate-sensitive assets
D) difference between rate-insensitive assets and rate-insensitive liabilities

Correct Answer

verified

Show Answer

Correct Answer

verified

Show Answer

A) Short-term consumer loans, cheque accounts and three-month Treasury Notes
B) Ten-year fixed rate mortgages, short-term consumer loans and long-term consumer loans
C) Short-term consumer loans, 10-year fixed-rate mortgages and one-year term deposits
D) Short-term consumer loans, six-month Treasury Notes and three-year Treasury Bonds

Correct Answer

verified

Show Answer

A) I would create a positive gap.
B) I would create a negative gap.
C) I would create a neutral gap.
D) It would depend on my FI's current profitability.

Correct Answer

verified

Show Answer

A) A negative gap indicates that a rise in interest rates would increase the bank's net interest income.
B) A positive gap indicates that a rise in interest rates would increase the bank's net interest income.
C) A positive gap indicates that a fall in interest rates would increase the bank's net interest income.
D) None of the listed options are correct.

Correct Answer

verified

Show Answer

Correct Answer

verified

Show Answer

A) increasing the maturity of repos to reduce money pressure in the money market over the longer term.
B) increasing RBA holdings of non-government securities for use with repos due to the shortage of government securities.
C) increasing the supply of deposits held by banks and other authorised deposit-taking institutions in their exchange settlement accounts held with the RBA.
D) All of the listed options are correct.

Correct Answer

verified

Show Answer

A) Expressing the repricing gap as a percentage of assets tells us the direction of the interest rate exposure.
B) Expressing the repricing gap as a percentage of liabilities tells us the scale of the interest rate exposure.
C) Expressing the repricing gap as a percentage of equity tells us the scale of the interest rate exposure.
D) Expressing the repricing gap as a percentage of liabilities tells us the direction of the interest rate exposure.

Correct Answer

verified

Show Answer

A) An FI that has a positive on-balance-sheet gap and a negative off-balance-sheet gap is not sure about interest movements.
B) An FI that has a positive on-balance-sheet gap and a negative off-balance-sheet gap has made a mistake in hedging its interest rate risk.
C) An FI that has a positive on-balance-sheet gap and a negative off-balance-sheet gap is using its off-balance-sheet position to hedge its on-balance-sheet position.
D) None of the listed options are correct.

Correct Answer

verified

Show Answer

Correct Answer

verified

Show Answer

A) by smoothing or targeting the level of interest rates it increases unexpected interest rate shocks and interest volatility.
B) by smoothing or targeting the level of interest rates it decreases unexpected interest rate shocks and interest volatility.
C) by letting interest rates find their own level it increases interest volatility.
D) All of the listed options are correct.

Correct Answer

verified

Show Answer

A) act as long-term sources of funds for the FI
B) reflect the true or core nature of the FI's operations
C) support the core of the FI's operations
D) None of the listed options are correct.

Correct Answer

verified

Show Answer

A) assumes that long-term interest rates are an arithmetic average of short-term rates
B) assumes that the yield curve reflects the market's current expectations of future short-term interest rates
C) recognises that forward rates are perfect predictors of future interest rates
D) assumes that risk premiums increase uniformly with maturity

Correct Answer

verified

Show Answer

Correct Answer

verified

Show Answer