387 $
© 2014 Pearson Canada Inc.$Assets Liabilities
Rate-sensitive $40 million $50 million
Fixed-rate $60 million $50 million
If interest rates rise by 5 percentage points, say from 10 to 15 percent, bank profits
(measured using basic gap analysis) will ____.
A) decline by $0.5 million
B) decline by $1.5 million
C) decline by $2.5 million
D) increase by $2.0 million
Answer: A
Diff: 3 Type: MC Page Ref: 313
Skill: Applied
Objective List: 13.3 Discuss how bank managers manage credit risk and interest-rate risk
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 to ____ by ____ of the total original asset value.
A) decline; 5 percent
B) decline; 10 percent
C) decline; 15 percent
D) increase; 20 percent
Answer: A
Diff: 3 Type: MC Page Ref: 314
Skill: Applied
Objective List: 13.3 Discuss how bank managers manage credit risk and interest-rate risk
Duration analysis involves comparing the average duration of the bank's ____ to the
average duration of its ____.
A) securities portfolio; non-deposit liabilities
B) assets; liabilities
C) loan portfolio; deposit liabilities
D) assets; deposit liabilities
Answer: B
Diff: 3 Type: MC Page Ref: 314
Skill: Recall
Objective List: 13.3 Discuss how bank managers manage credit risk and interest-rate risk