Reference no: EM132480934

1. A positive gap implies that an increase in interest rates will cause _______ in net interest income.

a. no change

b. a decrease

c. an increase

d. an unpredictable change

e. Either no change or a decrease.

2. If interest rates decrease 50 basis points for an FI that has a gap of +$5 million, the expected change in net interest income is

a. + $2,500.

b. + $25,000.

c. + $250,000.

d. - $250,000

e. - 25,000

3. The repricing model measures the impact of unanticipated changes in interest rates on

a. the market value of equity.

b. net interest income.

c. both market value of equity and net interest income.

d. the FI's capital position.

e. the prices of assets and liabilities.

4. An increase in interest rates

a. increases the market value of the FI's financial assets and liabilities.

b. decreases the market value of the FI's financial assets and liabilities.

c. decreases the book value of the FI's financial assets and liabilities.

d. increases the book value of the FI's financial assets and liabilities.

e. has no impact on the market value of the FI's financial assets and liabilities.

5. Which of the following is a weakness of the repricing model to measure interest rate risk?

a. Potential for overaggregation of assets and liabilities within each maturity bucket.

b. It ignores how changes in interest rates affect the market value of assets and liabilities.

c. It ignores the reinvestment of loan interest and principal payments that are reinvested at current market rates.

d. It fails to recognize off-balance-sheet activities that may be rate sensitive.

e. All of these.