How can banks measure interest-rate risk?
What will be an ideal response?
Bank managers use gap analysis and duration analysis to measure how vulnerable their banks are to interest rate risk.
Gap analysis looks at the difference, or gap, between the dollar value of a bank's variable-rate assets and the dollar value of its variable-rate liabilities.
Duration analysis measures how sensitive a bank's capital is to changes in market interest rates. A bank's duration gap is the difference between the average duration of the bank's assets and the average duration of the bank's liabilities.
You might also like to view...
If a defendant believes there is a 60 percent chance that the plaintiff will win $400,000 and a 40 percent chance the plaintiff will lose and receive nothing (zero) and the defendant's litigation cost is $150,000, what is the defendant's expected loss from the litigation?
A) $120,000 B) $90,000 C) $390,000 D) $360,000
Refer to Figure 3-4. If the current market price is $15, the market will achieve equilibrium by
A) a price increase, increasing the quantity supplied and decreasing the quantity demanded. B) a price decrease, decreasing the supply and increasing the demand. C) a price decrease, decreasing the quantity supplied and increasing the quantity demanded. D) a price increase, increasing the supply and decreasing the demand.
One of the criticisms of Basel 2 is that it is procyclical. That means that
A) banks may be required to hold more capital during times when capital is short. B) banks may become professional at a cyclical response to economic conditions. C) banks may be required to hold less capital during times when capital is short. D) banks will not be required to hold capital during an expansion.
Sellers in a perfectly competitive market are powerless to affect the market price of their product.
Answer the following statement true (T) or false (F)