Questions from Financial Markets

Q: What is a maturity bucket in the re pricing gap model?

What is a maturity bucket in the re pricing gap model? Why is the length of time selected for re pricing assets and liabilities important when using the re pricing gap model?

Q: What is the CGAP effect? According to the CGAP effect,

What is the CGAP effect? According to the CGAP effect, what is the relation between changes in interest rates and changes in net interest income when CGAP is positive? When CGAP is negative?

Q: Which of the following is an appropriate change to make on a

Which of the following is an appropriate change to make on a bank’s balance sheet when GAP is negative, spread is expected to remain unchanged, and interest rates are expected to rise? a. Replace fixe...

Q: If a bank manager was quite certain that interest rates were going

If a bank manager was quite certain that interest rates were going to rise within the next six months, how should the bank manager adjust the bank’s re pricing gap to take advantage of this anticipate...

Q: What is the gap-to-total-assets ratio?

What is the gap-to-total-assets ratio? What is the value of this ratio to interest rate risk managers and regulators?

Q: What is the spread effect?

What is the spread effect?

Q: Consider the re pricing gap model. a. What are

Consider the re pricing gap model. a. What are some of its weaknesses? b. How have large banks solved the problem of choosing the optimal time period for re pricing?

Q: Consider the following balance sheet (in millions) for an FI

Consider the following balance sheet (in millions) for an FI: a. What is the FI’s duration gap? b. What is the FI’s interest rate risk exposure? c. How can the FI...

Q: How is duration related to the interest elasticity of a fixed income

How is duration related to the interest elasticity of a fixed income security? What is the relationship between duration and the price of the fixed-income security?

Q: If you use duration only to immunize your portfolio, what three

If you use duration only to immunize your portfolio, what three factors affect changes in an FI’s net worth when interest rates change?