If a bank wants to shorten its asset duration, what type of risk is the bank concerned about? Group of answer choices Off balance sheet risk. The risk of rising interest rates. The risk of falling interest rates. Foreign exchange rate risk.
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If a bank wants to shorten its asset duration, what type of risk is the bank concerned about?
Step by step
Solved in 3 steps
- How should a bank structure its liquid assets portfolio to take advantage of falling interest rates ? a. The bank should invest in short-term securities to minimise capital loss b. The bank should invest in long term securities to maximise capital gains. c. The bank should borrow at fixed interest rates d. The bank should issue certificate deposits with fixed interest rates. e. The bank should hold cash to maximise its interest income. Which option is correctHow does a bank try to achieve the best possible risk adjusted return on its overall loan portfolio?When borrowers tend to pay back the loans to bankers earlier, the bank is facing a. Repricing risk b. Yield curve risk c. Basis points risk d. Embedded options risk
- The central bank takes action that lowers interest rates dramatically. what is the effect of it to firm value? increase or decrease and why.How does the stable inflation targeting approach impede bank flexibility? Explain the estimation of risk free rate in the global analysis of hurdle rates?What risks might commercial bank operations face by funding long-term loans such as mortgages to borrowers (often at fixed interest rates) with short-term deposits from savers? What steps could the financial institution take to reduce these risks?
- Provide an explanation of whether it is advantageous for a bank to classify debt investments as “held to maturity “or “available for sale” if the required return by the market declines? What impact will this have on the bank's balance sheet and net income?Please explain it why choosing option correct and wrong # Which of the following best describes interest rate risk? The risk that credit ratings will change, affecting the value of assets and liabilities The risk that banks will not be able to meet their liquidity requirements None of the above The risk that interest rates will rise or fall, affecting the value of assets and liabilitiesWhich of the following will have the same effect on money supply as raising the reserve requirement? a) The central bank decreases the interest rate. b) The central bank purchases bonds in the market. c) The central bank purchases securities and debentures in the market. d) Lower bond prices.
- What kind of interest rate swap would a commercial bank with a negative re-pricing gap (that is, rate sensitive assets is less than rate sensitive liabilities) utilize to hedge interest rate risk exposure (that is, would the commercial bank enter into an interest rate swap to make floating rate payments and receive fixed rate payments)?What risk is due to changes in the level of interest rate in the economy and may affect industries at the same time? a.systematic risk b. inflation rate risk c.foreign exchange rate risk d.interest rate riskIf ABC Bank’s ALCO targets the market value of shareholders’ equity in its interest rate risk management, is the bank positioned to gain or lose if interest rates fall? If interest rates rise by 1% for all assets and liabilities, what is the approximate expected change in the bank’s economic value of equity? Provide a specific transaction that the bank could implement in order to immunize its interest rate risk exposure.
