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- Changes in interest rates may change the market values of the bank's assets and liabilities by different amounts is a Select one: O a. Spread Risk O b. Refinancing risk O c. Reinvestment risk Od. Price RiskAn increase in the riskiness of financial securities results in a_______ in the supply of loanable funds and hence shift in the supply curve to the_______ O Decrease, leftO Decrease, rightO Increase, left O Increase, rightBanks use gap analysis to measure interest rate risk in their balance sheets. If firm XYZ is said to have a positive gap, this means: Group of answer choices C. Rate-sensitive assets exceed rate-sensitive liabilities B. Long-term assets are funded with short-term liabilities D. Rate-sensitive assets equal rate-sensitive liabilities A. Liabilities reprice before assets
- If the credit quality of the issuer falls sharply, what is your main concern? a.The share price. b.The volatility of the underlying c.The default risk. d.A rise in risk free interest rates Give typing answer with explanation and conclusionThe average maturity of its assets is larger than that of its deposits, as is typical of most banks. There is a reinvestment risk O re-finance risk O re-pricing risk default riskIs it correct to state that banks’ returns will be higher if interest rates increase? Outline the advantages and drawbacks of Gap analysis and Duration analysis.
- The average maturity of its assets is larger than that of its deposits, as is typical of most banks. There is a (a)reinvestment risk (b)re-finance risk (c)re-pricing risk (d)default riskUnsystematic risk is * a.the risk associated with movements in securities prices B.higher when interest rates rise C.the risk of loss of purchasing power D.reduced through diversificationWhich of the following statements is true? A. The percentage decrease in value when the yield-to-maturity (YTM) increases by a given amount is smaller than the increase in value when the yield-to-maturity (YTM) decreases by the same amount. B. Ratio analysis expands GAP analysis to focus on the sensitivity of bank profits across different interest rate environments. C. The repurchase price is smaller than the selling price and accounts for the interest charged by the buyer, who is lending funds to the seller with the security as collateral. D. The issuers or the firms issuing the bonds are rated on their junior unsecured debt.
- financial risk management fill in the blacks with correct answer. Interest rate risk is the potential for investment (....loss/gain..........). that result from a change in the interest rates. If interest rate (rise/fall)..., for instance, the value of the bond or fixed-income instrument will decline.f. What is the risk (standard deviation of returns) on the bank's loan portfolio of Loans A, B & C, if loan returns are uncorrelated (p = 0)?Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity? How should the capital structure weights are used to calculate the WACC be determined?