Management of Financial Institutions

2158 Words Feb 15th, 2012 9 Pages
1. A bank has a negative repricing gap using a 6 month maturity bucket. Which one of the following statements is most correct if MMDAs are rate sensitive liabilities? (Points : 1) If all interest rates are projected to increase, to limit a profit decline when this occurs, the bank could encourage its retail deposit customers to switch from 2 year CDs at current rates to 3 month CDs. If all interest rates are projected to decrease, to limit a profit decline when this occurs, the bank could encourage its retail deposit customers to switch from MMDAs to 2 year CDs at current rates. If all interest rates are projected to decrease, to limit a profit decline when this occurs, the bank could encourage its retail …show more content…
If all interest rates are projected to decrease, to limit a net value decline, before rates fall the bank should increase the amount of long term bonds issued by the bank.

5. A bank is facing a forecast of rising interest rates. How should they set the repricing and duration gap? (Points : 1) Positive repricing gap and negative duration gap Negative repricing gap and positive duration gap Positive repricing gap and positive duration gap Negative repricing gap and negative duration gap

6. A bank has a negative duration gap. Interest rates decline. Which one of the following best describes the effects of the interest rate change? (Points : 1) The bank's market value of equity is unchanged since the market value of its assets and liabilities move in the same direction. The bank's market value of equity goes up because the market value of its assets goes up by more than the market value of its liabilities goes down. The bank's market value of equity goes down because the market value of its assets goes up by more than the market value of its liabilities goes down. The bank's market value of equity goes down because the market value of its assets goes down by more than the market value of its liabilities goes down. The bank's market value of equity goes down because the market value of its liabilities increases by more than the
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