商业银行管理彼得S.罗斯英文原书第8版 英语试题库Chap007

Chapter 7
Risk Management for Changing Interest Rates: Asset-Liability Management and Duration Techniques
Fill in the Blank Questions
1. The ___________________ view of assets and liabilities held that the amount and types of deposits
was primarily determined by customers and hence the key decision a bank needed to make was
with the assets.
Answer: asset management
2. Recent decades have ushered in dramatic changes in banking. The goal of __________________
was simply to gain control of the bank's sources of funds.
Answer: liability management
3. The__________________________ is the interest rate that equalizes the current market price of a
bond with the present value of the future cash flows.
Answer: yield to maturity (YTM)
4. The __________________ risk premium on a bond allows the investor to be compensated for their
projected loss in purchasing power from the increase in the prices of goods and services in the
future.
Answer: inflation
5. The __________________ shows the relationship between the time to maturity and the yield to
maturity of a bond. It is usually constructed using treasury securities since they are assumed to
have no default risk.
Answer: yield curve
6. The __________________ risk premium on a bond reflects the differences in the ease and ability to
sell the bond in the secondary market at a favorable price.
Answer: liquidity
7. __________________________ are those assets which mature or must be repriced within the
planning period.
Answer: Interest-sensitive assets
8. __________________________ is the difference between interest-sensitive assets and
interest-sensitive liabilities.
Answer: Dollar interest-sensitive gap
9. A(n)__________________________ means that the bank has more interest-sensitive liabilities
than interest-sensitive assets.
Answer: negative interest-sensitive gap (liability sensitive)
10. The bank's__________________________ takes into account the idea that the speed (sensitivity)
of interest rate changes will differ for different types of assets and liabilities.
Answer: weighted interest-sensitive gap
11. __________________________ is the coordinated management of both the bank's assets and its
liabilities.
Answer: Funds management
12. __________________________ is the risk due to changes in market interest rates which can
adversely affect the bank's net interest margin, assets and equity.
Answer: Interest rate risk
13. The__________________________ is the rate of return on a financial instrument using a 360 day
year relative to the instrument's face value.
Answer: bank discount rate
14. The __________________________ component of interest rates is the risk premium due to the
probability that the borrower will miss some payments or will not repay the loan.
Answer: default risk premium
15. __________________ is the weighted average maturity for a stream of future cash flows. It is a
direct measure of price risk.
Answer: Duration
16. __________________________ is the difference between the dollar-weighted duration of the asset
portfolio and the dollar-weighted duration of the liability portfolio.
Answer: Duration gap
17. A(n)__________________________ duration gap means that for a parallel increase in all interest
rates the market value of net worth will tend to decline.
Answer: positive
18. A(n)__________________________ duration gap means that for a parallel increase in all interest
rates the market value of net worth will tend to increase.
Answer: negative
19. The __________________ refers to the periodic fluctuations in the scale of economic activity.
Answer: business cycle
20. The__________________________ is equal to the duration of each individual type of asset
weighted by the dollar amount of each type of asset out of the total dollar amount of assets.
Answer: duration of the asset portfolio
21. The__________________________ is equal to the duration of each individual type of liability
weighted by the dollar amount of each type of asset out of the total dollar amount of assets.
Answer: duration of the liability portfolio
22. A bank is __________________ against changes in its net worth if its duration gap is equal to zero.
Answer: immunized (insulated or protected)
23. The relationship between a change in an asset's price and an asset’s change in the yield or interest
rate is captured by __________________________.
Answer: convexity
24. The change in a financial institution's __________________ is equal to difference in the duration
of the assets and liabilities times the change in the interest rate divided by the starting interest rate times the dollar amount of the assets and liabilities.
Answer: net worth
25. When a bank has a positive duration gap a parallel increase in the interest rates on the assets and
liabilities of the bank will lead to a(n) __________________ in the bank's net worth.
Answer: decrease
26. When a bank has a negative duration gap a parallel decrease in the interest rates on the assets and
liabilities of the bank will lead to a(n)_________________________ in the bank's net worth.
Answer: decrease
27. U.S. banks tend to do better when the yield curve is upward-sloping because they tend to have
____________ maturity gap positions.
Answer: positive
28.One government-created giant mortgage banking firms which have subsequently been privatized is
the .
Answer: FNMA or Fannie Mae (or FHLMC or Freddie Mac)
29.One part of interest rate risk is . This part of interest rate risk reflects
that as interest rates rise, prices of securities tend to fall.
Answer: price risk
30.One part of interest rate risk is . This part of interest rate risk reflects
that as interest rates fall, any cash flows that are received before maturity are invested at a lower interest rate.
Answer: reinvestment risk
31.When a borrower has the right to pay off a loan early which reduced the lender’s expected rate of
return it is called .
Answer: call risk
32.In recent decades, banks have aggressively sought to insulate their assets and liability portfolios
and profits from the ravages if interest rate changes. Many banks now conduct their asset-liability management strategy with the help of an which often meets daily.
Answer: asset-liability committee
33. is interest income from loans and investments less interest expenses on
deposits and borrowed funds divided by total earning assets.
Answer: Net interest margin (NIM)
34. are those liabilities that which mature or must be repriced within
the planning period.
Answer: Interest-sensitive liabilities
35.Variable rate loans and securities are included as part of for banks.
Answer: repriceable assets
36.Money market deposits are included as part of for banks.
Answer: repriceable liabilities
37.Interest sensitive assets less interest sensitive liabilities divided by total assets of the bank is known
as .
Answer: relative interest sensitive gap
38.Interest sensitive assets divided by interest sensitive liabilities is known as .
Answer: Interest sensitivity ratio
39. is a measure of interest rate exposure which is the total difference in
dollars between those assets and liabilities that can be repriced over a designated time period.
Answer: Cumulative gap
40. is the phenomenon that interest rates attached to various assets often
change by different amounts and at different speeds than interest rates attached to various
liabilities,
Answer: basis risk
True/False Questions
T F 41. Usually the principal goal of asset-liability management is to maximize or at least stabilize
a bank's margin or spread.
Answer: True
T F 42. Asset management strategy in banking assumes that the amount and kinds of deposits and other borrowed funds a bank attracts are determined largely by its management.
Answer: False
T F 43. The ultimate goal of liability management is to gain control over a financial institution's sources of funds.
Answer: True
T F 44. If interest rates fall when a bank is in an asset-sensitive position its net interest margin will rise.
Answer: False
T F 45. A liability-sensitive bank will experience an increase in its net interest margin if interest rates rise.
Answer: False
T F 46. Under the so-called liability management view in banking the key control lever banks possess over the volume and mix of their liabilities is price.
Answer: True
T F 47. Under the so-called funds management view bank management's control over assets must be coordinated with its control over liabilities so that asset and liability management are
internally consistent.
Answer: True
T F 48. Bankers cannot determine the level or trend of market interest rates; instead, they can only react to the level and trend of rates.
Answer: True
T F 49. Short-term interest rates tend to rise more slowly than long-term interest rates and to fall more slowly when all interest rates in the market are headed down.
Answer: False
T F 50. A financial institution is liability sensitive if its interest-sensitive liabilities are less than its interest-sensitive assets.
Answer: False
T F 51. If a bank's interest-sensitive assets and liabilities are equal than its interest revenues from assets and funding costs from liabilities will change at the same rate.
Answer: True
T F 52. Banks with a positive cumulative interest-sensitive gap will benefit if interest rates rise, but lose income if interest rates decline.
Answer: True
T F 53. Banks with a negative cumulative interest-sensitive gap will benefit if interest rates rise, but lose income if interest rates decline.
Answer: False
T F 54. For most banks interest rates paid on liabilities tend to move more slowly than interest rates earned on assets.
Answer: False
T F 55. Interest-sensitive gap techniques do not consider the impact of changing interest rates on stockholders equity.
Answer: True
T F 56. Interest-sensitive gap, relative interest-sensitive gap and the interest-sensitivity ratio will often reach different conclusions as to whether the bank is asset or liability sensitive.
Answer: False
T F 57. The yield curve is constructed using corporate bonds with different default risks so the bank can determine the risk/return tradeoff for default risk.
Answer: False
T F 58. Financial securities that are the same in all other ways may have differences in interest rates that reflect the differences in the ease of selling the security in the secondary market at
a favorable price.
Answer: True
T F 59. Financial institutions face two major kinds of interest rate risk. These risks include price risk and reinvestment risk.
Answer: True
T F 60. Interest-sensitive gap and weighted interest-sensitive gap will always reach the same conclusion as to whether a bank is asset sensitive or liability sensitive.
Answer: False
T F 61. Weighted interest-sensitive gap is less accurate than interest-sensitive gap in determining the affect of changes in interest rates on net interest margin.
Answer: False
T F 62. A bank with a positive duration gap experiencing a rise in interest rates will experience an increase in its net worth.
Answer: False
T F 63. A bank with a negative duration gap experiencing a rise in interest rates will experience an increase in its net worth.
Answer: True
T F 64. Duration is a direct measure of the reinvestment risk of a bond.
Answer: False
T F 65. A bank with a positive duration gap experiencing a decrease in interest rates will experience an increase in its net worth.
Answer: True
T F 66. A bank with a negative duration gap experiencing a decrease in interest rates will experience an increase in its net worth.
Answer: False
T F 67. Duration is the weighted average maturity of a promised stream of future cash flows.
Answer: True
T F 68. Duration is a direct measure of the price risk of a bond.
Answer: True
T F 69. A bond with a greater duration will have a smaller price change in percentage terms when interest rates change.
Answer: False
T F 70. Long-term interest rates tend to change very little with the cycle of economic activity.
Answer: True
T F 71. A bank with a duration gap of zero is immunized against changes in the value of net worth due to changes in interest rates in the market.
Answer: True
T F 72. Convexity is the idea that the rate of change of an asset's price varies with the level of interest rates.
Answer: True
T F 73. The change in the market price of an asset's price from a change in market interest rates is roughly equal to the asset's duration times the change the interest rate divided by the
original interest rate.
Answer: True
T F 74. U.S. banks tend to do better when the yield curve is upward-sloping.
Answer: True
T F 75. Net interest margin tends to rise for U.S. banks when the yield curve is upward-sloping.
Answer: True
T F 76. Financial institutions laden with home mortgages tend be immune to interest-rate risk.
Answer: False
T F 77. If a Financial Institution's net interest margin is immune to interest-rate risk then so is its net worth.
Answer: False
Multiple Choice Questions
78.When is interest rate risk for a bank greatest?
A)When interest rates are volatile.
B)When interest rates are stable.
C)When inflation is high.
D)When inflation is low.
E)When loan defaults are high.
Answer: A
79. A bank’s IS GAP is defined as:
A)The dollar amount of rate-sensitive assets divided by the dollar amount of rate-sensitive
liabilities.
B)The dollar amount of earning assets divided by the dollar amount of total liabilities.
C)The dollar amount of rate-sensitive assets minus the dollar amount of rate-sensitive liabilities.
D)The dollar amount of rate-sensitive liabilities minus the dollar amount of rate-sensitive assets.
E)The dollar amount of earning assets times the average liability interest rate.
Answer: C
80.According to the textbook, the maturing of the liability management techniques, coupled with more
volatile interest rates, gave birth to the __________________ approach which dominates banking today. The term that correctly fills in the blank in the preceding sentence is:
A) Liability management
B) Asset management
C) Risk management
D) Funds management
E) None of the above.
Answer: D
81.The principal goal of interest-rate hedging strategy is to hold fixed a bank's:
A) Net interest margin
B) Net income before taxes
C) Value of loans and securities
D) Noninterest spread
E) None of the above.
Answer: A
82. A bank is asset sensitive if its:
A) Loans and securities are affected by changes in interest rates.
B) Interest-sensitive assets exceed its interest-sensitive liabilities.
C) Interest-sensitive liabilities exceed its interest-sensitive assets.
D) Deposits and borrowings are affected by changes in interest rates.
E) None of the above.
Answer: B
83.The change in a bank's net income that occurs due to changes in interest rates equals the overall
change in market interest rates (in percentage points) times _____________. The choice below that correctly fills in the blank in the preceding sentence is:
A) Volume of interest-sensitive assets
B) Price risk of the bank's assets
C) Price risk of the bank's liabilities
D) Size of the bank's cumulative gap
E) None of the above.
Answer: D
84. A bank with a negative interest-sensitive GAP:
A) Has a greater dollar volume of interest-sensitive liabilities than interest-sensitive assets.
B) Will generate a higher interest margin if interest rates rise.
C) Will generate a higher interest margin if interest rates fall.
D) A and B.
E) A and C.
Answer: E
85.The net interest margin of a bank is influenced by:
A) Changes in the level of interest rates.
B) Changes in the volume of interest-bearing assets and interest-bearing liabilities.
C) Changes in the mix of assets and liabilities in the bank's portfolio.
D) All of the above.
E) A and B only.
Answer: D
86.The discount rate that equalizes the current market value of a loan or security with the expected
stream of future income payments from that loan or security is known as the:
A) Bank discount rate
B) Yield to maturity
C) Annual percentage rate (APR)
D) Add-on interest rate
E) None of the above.
Answer: B
87.The interest-rate measure often quoted on short-term loans and money market securities such as
U.S. Treasury bills is the:
A) Bank discount rate
B) Yield to maturity
C) Annual percentage rate (APR)
D) Add-on interest rate
E) None of the above
Answer: A
88. A bank whose interest-sensitive assets total $350 million and its interest-sensitive liabilities
amount to $175 million has:
A) An asset-sensitive gap of 525 million
B) A liability-sensitive gap of $175 million
C) An asset-sensitive gap of $175 million
D) A liability-sensitive gap of $350 million
E) None of the above.
Answer: C
89. A bank has a 1-year $1,000,000 loan outstanding, payable in four equal quarterly installments.
What dollar amount of the loan would be considered rate sensitive in the 0 – 90 day bucket?
A)$0
B)$250,000
C)$500,000
D)$750,000
E)$1,000,000
Answer: B
90. A bank has Federal funds totaling $25 million with an interest rate sensitivity weight of 1.0. This
bank also has loans of $105 million and investments of $65 million with interest rate sensitivity weights of 1.40 and 1.15 respectively. This bank also has $135 million in interest-bearing deposits with an interest rate sensitivity weight of .90 and other money market borrowings of $75 million with an interest rate sensitivity weight of 1.0. What is the weighted interest-sensitive gap for this bank?
A) $50.25
B) $-15
C) -$50.25
D) $34.25
E) None of the above
Answer: A
91. A bond has a face value of $1000 and five years to maturity. This bond has a coupon rate of 13
percent and is selling in the market today for $902. Coupon payments are made annually on this bond. What is the yield to maturity (YTM) for this bond?
A) 13%
B) 12.75%
C) 16%
D) 11.45%
E) Cannot be calculated from the information given
Answer: C
92. A treasury bill currently sells for $9,845, has a face value of $10,000 and has 46 days to maturity.
What is the bank discount rate on this security?
A) 12.49%
B) 12.13%
C) 12.30%
D) 2%
E) None of the above
Answer: B
93.The _______________ is determined by the demand and supply for loanable funds in the market.
The term that correctly fills in the blank in the preceding sentence is:
A) The yield to maturity
B) The banker's discount rate
C) The holding period return
D) The risk-free real rate of interest
E) The market rate of interest on a risky loan
Answer: D
94. A bank with a positive interest-sensitive gap will have a decrease in net interest income when
interest rates in the market:
A) Rise
B) Fall
C) Stay the same
D) A bank with a positive interest-sensitive gap will never have a decrease in net interest income
Answer: B
95.The fact that a consumer who purchases a particular basket of goods for $100 today has to pay $105
next year for the same basket of goods is an example of which of the following risks:
A) Inflation risk
B) Default risk
C) Liquidity risk
D) Price risk
E) Maturity risk
Answer: A
96. A bank has Federal Funds totaling $25 million with an interest rate sensitivity weight of 1.0. This
bank also has loans of $105 million and investments of $65 million with interest rate sensitivity weights of 1.40 and 1.15 respectively. This bank also has $135 million in interest-bearing deposits with an interest rate sensitivity weight of .90 and other money market borrowings of $75 million with an interest rate sensitivity weight of 1.0. What is the dollar interest-sensitive gap for this bank?
A) $50.25
B) $-15
C) -$50.25
D) $34.25
E) None of the above
Answer: B
97.If a bank has a positive GAP, an increase in interest rates will cause interest income to __________,
interest expense to__________, and net interest income to __________.
A)Increase, increase, increase
B)Increase, decrease, increase
C)Increase, increase, decrease
D)Decrease, decrease, decrease
E)Decrease, increase, increase
Answer: A
98.If a bank has a negative GAP, a decrease in interest rates will cause interest income to __________,
interest expense to__________, and net interest income to __________.
A)Increase, increase, increase
B)Increase, decrease, increase
C)Increase, increase, decrease
D)Decrease, decrease, decrease
E)Decrease, decrease, increase
Answer: E
99. A treasury bill currently sells for $9,845, has a face value of $10,000 and has 46 days to maturity.
What is the yield to maturity on this security?
A) 12.49%
B) 12.13%
C) 12.30%
D) 2%
E) None of the above
Answer: A
100.The Third National Bank of Edmond reports a net interest margin of 5.83%. It has total interest revenues of $275 million and total interest expenses of $210 million. What does this bank's
earnings assets have to be?
A) $4717 million
B) $3602 million
C) $1115 million
D) $3.790 million
E) None of the above
Answer: C
101.The Third National Bank of Edmond reports a net interest margin of 5.83%. It has total interest revenues of $275 million and total interest expenses of $210 million. This bank has earnings assets of $1115. Suppose this bank's interest revenues rise by 8 percent and its interest expenses and earnings assets rise by 10 percent next year. What is this bank's new net interest margin?
A) 5.83%
B) 7.09%
C) 3.59%
D) 5.38%
E) 7.80%
Answer: D
102. Which of the following is part of funds management?
A) The goal of funds management is simply to gain control over the bank's funds sources.
B) Since the amount of deposits a bank holds is determined largely by its customers, the focus of
the bank should be on managing the assets of the bank.
C) Management of the bank's assets must be coordinated with management of the bank's
liabilities.
D) The spread between interest revenues and interest expenses is unimportant.
E) None of the above
Answer: C
103. If Fifth National Bank's asset duration exceeds its liability duration and interest rates rise, this will tend to __________________ the market value of the bank's net worth.
A) Lower
B) Raise
C) Stabilize
D) Not affect
E) None of the above
Answer: A
104.If Main Street Bank has $100 million in commercial loans with an average duration of 0.40 years;
$40 million in consumer loans with an average duration of 1.75 years; and $30 million in U.S.
Treasury bonds with an average duration of 6 years, what is Main Street's asset portfolio duration?
A) 0.4 years
B) 1.7 years
C) 2.7 years
D) 4.1 years
E) None of the above
Answer: B
105. A bank has an average asset duration of 4.7 years and an average liability duration of 3.3 years.
This bank has $750 million in total assets and $500 million in total liabilities. This bank has:
A) A positive duration gap of 8.0 years.
B) A negative duration gap of 2.5 years.
C) A positive duration gap of 1.4 years.
D) A positive duration gap of 2.5 years.
E) None of the above.
Answer: D
106. A bank has an average asset duration of 1.15 years and an average liability duration of 2.70 years.
This bank has $250 million in total assets and $225 million in total liabilities. This bank has:
A) A negative duration gap of 1.55 years.
B) A positive duration gap of 1.28 years.
C) A negative duration gap of 3.85 years.
D) A negative duration gap of 1.28 years.
E) None of the above.
Answer: D
107.The duration of a bond is the weighted average maturity of the future cash flows expected to be received on a bond. Which of the following is a true statement concerning duration?
A) The longer the time to maturity, the greater the duration
B) The higher the coupon rate, the higher the duration
C) The shorter the duration, the greater the price volatility
D) All of the above are true
E) None of the above are true
Answer: A
108. A bond has a duration of 7.5 years. Its current market price is $1125. Interest rates in the market are 7% today. It has been forecasted that interest rates will rise to 9% over the next couple of weeks.
How will this bank's price change in percentage terms?
A) This bond's price will rise by 2 percent.
B) This bond's price will fall by 2 percent.
C) This bond's price will fall by 14 .02 percent
D) This bond's price will rise by 14.02 percent
E) This bond's price will not change
Answer: C
109. A bank has an average asset duration of 5 years and an average liability duration of 3 years. This bank has total assets of $500 million and total liabilities of $250 million. Currently, market interest rates are 10 percent. If interest rates fall by 2 percent (to 8 percent), what is this bank's change in net worth?
A) Net worth will decrease by $31.81 million
B) Net worth will increase by $31.81 million
C) Net worth will increase by $27.27 million
D) Net worth will decrease by $27.27 million
E) Net worth will not change at all
Answer: B
110. A bank has an average asset duration of 5 years and an average liability duration of 3 years. This bank has total assets of $500 million and total liabilities of $250 million. Currently, market interest rates are 10 percent. If interest rates fall by 2 percent (to 8 percent), what is this bank's duration gap?
A) 2 years
B) –2 years
C) 3.5 years
D) –3.5 years
E) None of the above
Answer: C
111. A bank has an average asset duration of 5 years and an average liability duration of 9 years. This bank has total assets of $1000 million and total liabilities of $850 million. Currently, market
interest rates are 5 percent. If interest rates rise by 2 percent (to 7 percent), what is this bank's
change in net worth?
A) Net worth will decrease by $50.47 million
B) Net worth will increase by $50.47 million
C) Net worth will decrease by $240.95 million
D) Net worth will increase by $240.95 million
E) Net worth will not change at all
Answer: B
112. A bank has an average asset duration of 5 years and an average liability duration of 9 years. This bank has total assets of $1000 million and total liabilities of $850 million. Currently, market
interest rates are 5 percent. If interest rates rise by 2 percent (to 7 percent), what is this bank's
duration gap?
A) –4 years
B) 4 years
C) 2.65 years
D) –2.65 years
E) 12.65 years
Answer: D
113. A bank has $100 million of investment grade bonds with a duration of 9.0 years. This bank also has $500 million of commercial loans with a duration of 5.0 years. This bank has $300 million of
consumer loans with a duration of 2.0 years. This bank has deposits of $600 million with a duration of 1.0 years and nondeposit borrowings of $100 million with an average duration of .25 years.
What is this bank's duration gap? These are all of the assets and liabilities this bank has.
A) This bank has a duration gap of 14.75 years
B) This bank has a duration gap of 15.03 years
C) This bank has a duration gap of 3.55 years
D) This bank has a duration gap of 3.75 years
E) This bank has a duration gap of 5.15 years
Answer: D
114. Which of the following statements is true concerning a bank's duration gap?
A) If a bank has a positive duration gap and interest rates rise, the bank's net worth will decline
B) A bank with a positive duration gap has a longer average duration for its assets than for its
liabilities
C) If a bank has a zero duration gap and interest rates rise, the bank's net worth will not change
D) If a bank has a negative duration gap and interest rates rise, the bank's net worth will increase
E) All of the above are true statements
Answer: E
115. A bank has an average duration for its asset portfolio of 5.5 years. This bank has total assets of $1000 million and total liabilities of $750 million. If this bank has a zero duration gap, what must the duration of its liabilities portfolio be?
A) 7.33 years
B) 4.125 years。