Handout 5-
[Q1] If a bank has ________ rate-sensitive assets than liabilities, then ________ in interest rates will increase bank profits.
A) more; a decline
B) more; an increase
C) less; an increase
D) fewer; a surge
[Q2] Mortgage Crisis occurred because of lending large amounts of money to ________ risk borrowers with ________ FICO scores, given ________ biased value appraisals.
A) High, high, upward,
B) Low, high, downward
C) High, low, downward
D) High, low, upward
[Q3] The maturity of a bond is always _______ than the duration of the bond. When the maturity of the bond is zero it automatically implies that the duration is _______
A) smaller or equal, smaller or zero
B) bigger, smaller
C) smaller, bigger
D) higher or equal, zero
[Q4] In the interest rate swap contracts, the bank who receives the ____________ wins over the bank who receives the ____________ when the interest rate ______________
A) Variable, fixed, decreases
B) Variable, fixed, increases
C) Fixed, variable, increases
D) Fixed, variable, stays the same
[Q5] Id a bank has rate-sensitive assest __________ than liabilities, a in interest rates will reduce bank profits, while a_____________ in interest rates will raise bank profits.
A) fewer; rise; rise
B) fewer; decline; decline
C) more; rise; decline
D) more; decline; rise
[Q6] Which of the following are not reported as assets on a bank's balance sheet?
A) U.S. Treasury securities
B) Checkable deposits
C) Deposits with other banks
D) Cash items in the process of collection
[Q7] Credit risk management tools include:
A) interest rate swaps.
B) duration analysis.
C) deductibles.
D) collateral
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Assets
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Liabilities
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Rate-sensitive
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$40 million
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$50 million
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Fixed-rate
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$60 million
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$50 million
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[Q8] Assuming that the average duration of its assets is four years, while the average duration of its liabilities is three years, then a 5 percentage point increase in interest rates will cause the net worth of First National Bank to ______ by ______ of the total original asset value.
A) decline; 10 percent
B) increase; 20 percent
C) decline; 5 percent
D) decline; 15 percent
[Q9] If interest rates rise by 5 percentage points, say from 10% to 15%, bank profits (measured using gap analysis) will ______.
A) decline by $0.5 million
B) decline by $2.5 million
C) decline by $1.5 million
D) increase by $2.0 million