N1.Account If the Duration GAP for a bank is positive and interest rates rise, the value of thebank's equity would be expected to:A)Would fall because the value of assets would fall more than the value ofliabilitiesB)Would fall because the value of assets would rise less than the value ofliabilitiesC)Would rise because the value of assets would rise more than the value ofliabilitiesD)Would rise because the value of assets would fall less than the value ofliabilities

Interest rate gap is a risk tool used by banks and this is based on mismatch between the assets and…

Answered: If the Duration GAP for a bank is…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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If a bank has rate-sensitive assets than liabilities, then in interest rates will increase bank profits. O fewer; an increase fewer; a surge more; an increase more; a decline
If a bank has a positive repricing gap (RSAs > RSLs), then: Does this bank have reinvestment or refinancing risk? If interest rates increase, net interest income will: A. Reinvestment risk, increase B. Reinvestment risk, decrease C. Refinancing risk, increase D. Refinancing risk, decrease
First National Bank has assets that are more rate-sensitive than its liabilities. As interest rates rise, then we should expect the bank profits to: A. Rise B. Fall C. Remain unchanged
If a bank is exposed to refinancing risk, its profitability is higher if interest rates interest rates fall; rise rise; stay the same rise; rise rise; fall and if it is exposed to reinvestment risk, its profitability is higher if fall; fall
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 correct
4) All else the same, if a bank's liabilities are more sensitive to interest rate fluctuations than are bank profits. its assets, then in interest rates will A) an increase; increase B) an increase; reduce C) a decline; reduce D) a decline; not affect
If a bank has a negative gap, it is likely that it has a: a. positive duration gap. b. negative duration gap. c. low stock price. d. high return on assets.
The average maturity of its assets is larger than that of its deposits, as is typical of most banks. There is a reinvestment risk O re-finance risk O re-pricing risk default risk
Select all that are true regarding interest rate risk for the bank. A.Banksmakeprofitsfromhighratesondepositsandlowratesonloans. B.The steeper the yield curve, the more profitable the bank becomes. C.As long-term mortgage rates rise, borrowers are less likely to refinance or pay back their loans since they have locked in a lower rate, which results in slower than anticipated pay downs on the bank's MBS debt investment portfolio and a decrease in interest rate risk. D.When the short-end of the yield curve rises and the long-end falls, the bank's profits will increase. E.A bank's assets; money it lends out, and it's liabilities; money it uses to fund those assets, can mature or re-price at different times or at the same time.
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.
Complete the following table : Aggressive IS Gap ManagementDefensive IS Gap Management Rising Market Interest Rates What steps will a bank take to put in place an aggressive /defensive strategy in the face of rising interest rates. Paragraph BIEE
Banks use gap analysis to measure interest rate risk in their balance sheets. If firm XYZ is said to have a positive gap, this means: Group of answer choices C. Rate-sensitive assets exceed rate-sensitive liabilities B. Long-term assets are funded with short-term liabilities D. Rate-sensitive assets equal rate-sensitive liabilities A. Liabilities reprice before assets

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