Chapter 5 testbank solution manual financial institutions management a risk management approach PDF

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Chapter 05 - Testbank_Student: ____________________________________________________________________________1.  Repricing gap refers to the:   A.  difference between rate-sensitive assets and rate-sensitive liabilities.&n...

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Chapter 05 - Testbank Student: ___________________________________________________________________________ 1.Repricinggapreferstothe: 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. 

2.Theterm'rate-sensitiveassets'referstoassets: A.whoseinterestratewillberepricedoversomefutureperiod. B.withaparticularlyhighinterestrate. C.withaparticularlylowinterestrate. D.forwhichdemandishighlydependentonthelevelofinterestrates. 

3.Whichofthefollowingstatementsistrue? A.APRArequiressmallerAustralianFIstousetherepricinggapmethodtoestimateinterestrateexposuresintheir bankingbookforcapitaladequacy. B.AustralianFIsareonlyrequiredtousetherepricinggapmethodiftheyarelistedonanUSstockexchange. C.APRAdoesnotrequireAustralianFIstousetherepricinggapmethodtoestimateinterestrateexposuresintheir bankingbookforcapitaladequacy. D.AustralianFIsareonlyrequiredtousetherepricinggapiftheyareinternationallyactive. 

4.Whatisspreadeffect? 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. 

5.Thecumulativegapoverthewholebalancesheetbydefinition: A.mustbegreaterthanzero. B.mustbelowerthanzero. C.mustequalzero. D.cantakeanyvalue. 

6.Whichofthefollowingstatementsistrue? A.Anegativegapindicatesthatariseininterestrateswouldlowerthebank'snetinterestincome. B.Apositivegapindicatesthatariseininterestrateswouldlowerthebank'snetinterestincome. C.Anegativegapindicatesthatariseininterestrateswouldincreasethebank'snetinterestincome. D.Noneofthelistedoptionsarecorrect. 

7.Whichofthefollowingstatementsistrue? 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. 

8.Considerthefollowingrepricingbucketsandgaps:   Repricing bucket 1day 1dayto3months 3to6months 6to12months 1to5years Over5years

Assets $000 $100000 $100000 $250000 $75000 $25000

Liabilities $120000 $70000 $100000 $80000 $130000 $100000

Gaps –$70000 $30000 $0 $170000 –$55000 –$75000

Whatistheannualisedchangeinthebank'sfuturenetinterestincomeiftheovernightinterestratedecreasedby100basispoints?

A.–$700 B.$700 C.–$7000 D.$700 

9.Considerthefollowingrepricingbucketsandgaps:  Repricing bucket 1day 1dayto3months 3to6months 6to12months 1to5years Over5years

Assets $50000 $100000 $100000 $250000 $75000 $25000

Liabilities $120000 $70000 $100000 $80000 $130000 $100000

Gaps –$70000 $30000 $0 $170000 –$55000 –$75000

Whatistheannualisedchangeinthebank'sfuturenetinterestincomeiftheovernightinterestrateincreasedby100basispoints?

A.–$700 B.$700 C.–$7000 D.$700 

10.Considerthefollowingrepricingbucketsandgaps:   Repricing bucket 1day 1dayto3months 3to6months 6to12months 1to5years Over5years

Assets $50000 $100000 $100000 $250000 $75000 $25000

Liabilities $120000 $70000 $100000 $80000 $130000 $100000

Gaps –$70000 $30000 $0 $170000 –$55000 –$75000

Whatistheannualisedchangeinthebank'sfuturenetinterestincomeiftheaverageratechangeforassetsandliabilitiesthatcanbe repricedwithinoneyearisanincreaseof100basispoints?

A.$17000 B.–$17000 C.$13000 D.–$13000 

11.Considerthefollowingrepricingbucketsandgaps:   Repricing bucket 1day 1dayto3months 3to6months 6to12months 1to5years Over5years

Assets $50000 $100000 $100000 $250000 $75000 $25000

Liabilities $120000 $70000 $100000 $80000 $130000 $100000

Gaps –$70000 $30000 $0 $170000 –$55000 –$75000

Whatistheannualisedchangeinthebank'sfuturenetinterestincomeiftheaverageratechangeforassetsandliabilitiesthatcanbe repricedwithinoneyearisadecreaseof100basispoints?

A.$17000 B.–$17000 C.$13000 D.–$13000 

12.Considerthefollowingrepricingbucketsandgaps:   Repricing bucket 1day 1dayto3months 3to6months 6to12months 1to5years Over5years

Assets $50000 $100000 $100000 $250000 $75000 $25000

Liabilities $120000 $70000 $100000 $80000 $130000 $100000

Gaps –$70000 $30000 $0 $170000 –$55000 –$75000

Cumulative gap –$70000 –$40000 –$40000 $130000 $75000 $0

Whatistheannualisedchangeinthebank'sfuturenetinterestincomeiftheaverageratechangeforassetsandliabilitiesthatcanbe repricedoverfiveyearsisanincreaseof50basispoints?

A.$7500 B.$7500 C.$0 D.Notenoughinformationtoanswerthequestion. 

13.Whichofthefollowingstatementsistrue? A.Therepricinggapmodelisamarketvalueaccountingcashflowanalysisoftherepricinggapbetweentheinterest revenueearnedonassetsandtheinterestpaidonliabilitiesoversomeperiod. B.Therepricinggapmodelisabookvalueaccountingcashflowanalysisoftherepricinggapbetweentheinterest revenueearnedonassetsandtheinterestpaidonliabilitiesoversomeperiod. C.Therepricinggapmodelisamarketvalueaccountingcashflowanalysisoftherepricinggapbetweentheinterest revenueearnedonliabilitiesandtheinterestpaidonassetsoversomeperiod. D.Therepricinggapmodelisabookvalueaccountingcashflowanalysisoftherepricinggapbetweentheinterest revenueearnedonliabilitiesandtheinterestpaidonassetsoversomeperiod. 

14.Whichofthefollowingstatementsistrue? A.Asopposedtothedurationmodel,therepricinggapmodelisamarket-valuebasedapproach. B.Asopposedtothematuritymodel,therepricinggapmodelisamarket-valuebasedapproach. C.Thecapitallosseffectiscapturedbytherepricingmodel. D.Noneofthelistedoptionsarecorrect. 

15.Thetermcoredepositsreferstothosedepositsthat: 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. 

16.Whichofthefollowingarerate-sensitiveassets? 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,ten-yearfixedratemortgagesandone-yeartermdeposits. D.Short-termconsumerloans,six-monthTreasurynotesandthree-year 

17.Whichofthefollowingarerate-sensitiveliabilities? A.Short-termconsumerloans,chequeaccountsandthree-monthTreasurynotes. B.Three-monthtermdeposits,threemonthbankers'acceptances,six-monthnegotiablecertificatesofdepositandoneyeartermdeposits. C.Short-termconsumerloans,six-monthnegotiablecertificatesofdepositandone-yeartermdeposits. D.Short-termconsumerloans,six-monthTreasurynotesandthree-yearTreasurybonds. 

18.Theterm'runoffs'refersto: A.one-offcashflowofinterestandprincipalamortisationpaymentsonlong-termassets. B.periodiccashflowofinterestandprincipalamortisationpaymentsonlong-termassets. C.one-offcashflowofinterestandprincipalamortisationpaymentsonshort-termassets. D.periodiccashflowofinterestandprincipalamortisationpaymentsonshort-termassets. 

19.Whichofthefollowingstatementsistrue? A.Chequeaccountsareatypeofinterest-sensitiveasset. B.Chequeaccountsareatypeofinterest-sensitiveliability. C.Therearestrongargumentsforandagainsttheinclusionofchequeaccountsasatypeofinterest-sensitiveasset. D.Therearestrongargumentsforandagainsttheinclusionofchequeaccountsasatypeofinterest-sensitiveliability. 

20.Whichofthefollowingstatementsisfalse? A.AmajorreasonforchequeaccountstobeincludedinanFI'sinterest-sensitiveliabilitiesisthatthemajorityofthese accountsarecoredeposits. B.Chequeaccountsshouldbetreatedasinterest-sensitiveliabilitiesbecauseifinterestratesrise,depositsmightbe withdrawnandthuswillneedtobereplacedbyhigher-yieldingdeposits. C.Thefinaldecisionwhetherornottoincludechequeaccountsasratesensitiveliabilitiesmustbemadeafteran analysisoftheactualdeposithistory. D.Noneofthelistedoptionsarecorrect. 

21.Whichofthefollowingstatementsistrue? A.AmajorreasonforchequeaccountstobeexcludedfromanFI'sinterest-sensitiveliabilitiesisthatthemajorityofthese accountsarecoredeposits. B.Chequeaccountsshouldbetreatedasinterest-sensitiveliabilitiesbecauseifinterestratesfall,depositsmightbe withdrawnandthuswillneedtobereplacedbyhigher-yieldingdeposits. C.Thefinaldecisionwhetherornottoincludechequeaccountsasratesensitiveliabilitiesmustbemadebypredicting depositors'behaviours. D.Noneofthelistedoptionsarecorrect. 

22.Whichofthefollowingstatementsistrue? A.Thecumulativerepricinggapcanalsobeexpressedasapercentageofliabilities. B.Thecumulativerepricinggapcanalsobeexpressedasapercentageofequity. C.Thecumulativerepricinggapcanalsobeexpressedasapercentageofassets. D.Noneofthelistedoptionsarecorrect. 

23.Whichofthefollowingstatementsistrue? 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. 

24.Whichofthefollowingstatementsistrue? A.AnFIwithapositiverepricinggapexpectsinterestratestoremainstable. B.AnFIwithapositiverepricinggapexpectsinterestratestorise. C.AnFIwithapositiverepricinggapexpectsinterestratestoremainfall. D.AnFIwithapositiverepricinggaphasnotparticularexpectationsregardinginterestratemovements. 

25.Whichofthefollowingstatementsistrue? A.AnFIwithanegativerepricinggapexpectsinterestratestoremainstable. B.AnFIwithanegativerepricinggapexpectsinterestratestorise. C.AnFIwithanegativerepricinggapexpectsinterestratestoremainfall. D.AnFIwithanegativerepricinggaphasnotparticularexpectationsregardinginterestratemovements. 

26.Whichofthefollowingstatementsistrue? A.AnFIwitharepricinggapofzeroisunsureaboutinterestratemovements. B.AnFIwitharepricinggapofzeroexpectsinterestratestorise. C.AnFIwitharepricinggapofzeroexpectsinterestratestoremainfall. D.AnFIwitharepricinggapofzerodoesnotmeasureandmanageitsinterestrateexposures. 

27.AssumeyouarethemanagerofanFI.Howwouldyoustructureyourbalancesheetusingtherepricinggapmodelif youexpectedinterestratestoincrease? 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. 

28.Whichofthefollowingstatementsistrue? A.Asopposedtothedurationgapmodel,therepricinggapmodelcapturesthecapitallossandcapitalgaineffect. B.Therepricinggapmodelisamarket-valuebasedapproach,whilethedurationmodelisabook-valuebasedapproach. C.Therepricinggapmodeldoesnotconsiderthesizeandtimingofcashflows. D.ThedurationgapmodelfocusesontheimpactinterestratechangeshaveonanFI'snetinterestincome. 

29.Whichofthefollowingstatementsistrue? 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. 

30.Whichofthefollowingstatementsistrue? A.Oneproblemwiththerepricinggapisover-aggregation,whichmeansthatwhilethedollarvalueofasset-sensitive liabilitiesandassetswithinonebucketmightbethesame,therepricingtimingforassetsandliabilitieswithinthisbucket mightdiffer. B.Oneproblemwiththerepricinggapisover-aggregation,whichmeansthatmanagerscannotmakeinformeddecisions aboutinterestratemovements. C.Anadvantageoftherepricinggapisover-aggregation,whichmeansthattheinformationprovidedinthebucketsis precise. D.Noneofthelistedoptionsarecorrect. 

31.Whichofthefollowingstatementsistrue? A.Thesizeoftherangeoverwhichbucketgapsarecalculateddoesnotmatterastherepricinggapwillalwaysleadto exactresults. B.Theshortertherangeoverwhichbucketgapsarecalculated,thegreaterthepotentialerror. C.Theshortertherangeoverwhichbucketgapsarecalculated,thesmallerthepotentialerror. D.Noneofthelistedoptionsarecorrect. 

32.Whichofthefollowingstatementsistrue? A.Therunoffcomponentisrate-sensitive. B.Therunoffcomponentisrate-insensitive. C.Therunoffcomponentreferstointerestpaymentsonlong-termliabilitiesthatneedtoberefinancedatmarketrates. D.Therun-offcomponentreferstointerestpaymentsonshort-termliabilitiesthatneedtoberefinancedatmarketrates. 

33.Considerthefollowingtable:  

Assets

Liabilities

Item

$ amount runoff $ amount runoff Item in less tgan one in more tgan one year year

$ amount runoff $ amount runoff in less tgan one in more tgan one year year

Short-termconsumerloans

$45

$50

Equity

$0

$5

Long-termconsumerloans

$50

$60

Demanddeposits

$25

$30

Three-month T-notes

$5

$0

Savingsaccounts

$20

$15

Six-month T-notes

$25

$0

Three-monthCDs

$5

$0

Three-yearnotes

$15

$2

Six-monthCDs

$12

$0

10-yearmortgages

$5

$20

Six-monthcommercial $2 papers

$4

$0

One-yeartermdeposits $4

$0

Two-yeartermdeposits $20

$0

30-yearfloatingratemortgages $30

$175

Whatistheone-yeargapadjustedforrunoffs?

A.$43 B.$87 C.$121 D.$78 

$132

$88

$54

34.Considerthefollowingtable: 

Assets

Liabilities

Item

$ amount runoff $ amount runoff Item in less tgan one in more tgan one year year

$ amount runoff $ amount runoff in less tgan one in more tgan one year year

Short-termconsumerloans

$5

$5

Equity

$0

$0

Long-termconsumerloans

$5

$6

Demanddeposits

$20

$10

Three-month T-notes

$5

$2

Savingsaccounts

$10

$5

Six-month T-notes

$15

$0

Three-monthCDs

$5

$2

Three-yearnotes

$5

$2

Six-monthCDs

$10

$0

10-yearmortgages

$25

$10

Six-monthcommercial $5 papers

$4

$5

One-yeartermdeposits $17

$4

Two-yeartermdeposits $13

$0

30-yearfloatingratemortgages $20

Whatistheone-yeargapadjustedforrunoffs?

A.$0 B.$50 C.$55 D.$5. 

35.Considerthefollowingtable: 

Assets

Liabilities

Item

$ amount runoff $ amount runoff Item in less tgan one in more tgan one year year

$ amount runoff $ amount runoff in less tgan one in more tgan one year year

Short-termconsumerloans

$45

$50

Equity

$0

$5

Long-termconsumerloans

$50

$60

Demanddeposits

$25

$30

Three-month T-notes

$5

$0

Savingsaccounts

$20

$15

Six-month T-notes

$25

$0

Three-monthCDs

$5

$0

Three-yearnotes

$15

$2

Six-monthCDs

$12

$0

10-yearmortgages

$5

$20

Six-monthcommercial $2 papers

$4

$0

One-yeartermdeposits $4

$0

Two-yeartermdeposits $20

$0

30-yearfloatingratemortgages $30

$175

$132

$88

$54

Howdoesadecreaseintheaverageone-yearinterestrateof50basispointsaffecttheFI'sfuturenetinterestincome?

A.TheNIIdecreasesby$0.435. B.TheNIIincreasesby$0.435. C.TheNIIremainsconstant. D.TheNIIdecreasesby$0.39. 

36.Considerthefollowingtable:  

Assets

Liabilities

Item

$ amount runoff $ amount runoff Item in less tgan one in more tgan one year year
...