Finance 510 - Review Questions
1. 3 sources of impact on the value of equity for a change in interest according to the duration gap model - what
are the 3 components: asset size, size of interest rate changes, leverage adjusted duration gap
2. this form of accounting would help measure insolvency risk: market value accounting
3. this source of liquidity impacts the liability side of the balance sheet: pur- chased liquidity
4. a liquidity crisis resulting in a bank run is rarely a problem anymore due to these 3 reasons: FDIC, discount
window, mandated liquidity ratio requirements
5. the fairly recent crisis with silicon bank highlighted these risks: insolvency, liquidity and interest rate
6. a liability side shortfall will only result in change of the composition of
the balance sheet with this source of liquidity: purchased liquidity - liability side source of funding
7. prepayment risk will increase when interest rates move in this direction: -
when they decrease
8. a positive repricing gap, more RSA > RSL, exposes an FI to this type of risk that is concerned with:
reinvestment risk, concerned with rates going down
9. these are a system to gauge a borrowers creditworthiness: the five C's of credit
10.how does the repricing gap model help a financial institution manage its interest rate risk: the purpose is to
help an FI know that if the interest rate changes how it will effect their interest income - they will know what impact
over what period
11.this specific type of credit risk can be reduced by holding a large number of loans: unsystematic credit risk
12.: spread effect
13.describe how a pass-through security is different from a CMO: CMOs have tranches that have a priority of
prepayment of principal
14.current banking crisis highlighted these three things: insolvency, liquidity, interest rate risk
15.specific type of credit that affects all borrowers: systematic aka market risk
16.using purchased liquidity, to fund asset side how does the balance sheet change: changes the composition and
size
17.for a positive gap and decrease in interest rates, a negative spread affect-
1/
5
, Finance 510 - Review Questions
: downward
18.a loan sale w/ recourse owuld increase this risk to an FI: off-balance sheet risk
19.prepayment risk will increase when interest rates: decrease
20.an asset that isn't rate sensitive or fixed rate: non earning asset
2/
5
1. 3 sources of impact on the value of equity for a change in interest according to the duration gap model - what
are the 3 components: asset size, size of interest rate changes, leverage adjusted duration gap
2. this form of accounting would help measure insolvency risk: market value accounting
3. this source of liquidity impacts the liability side of the balance sheet: pur- chased liquidity
4. a liquidity crisis resulting in a bank run is rarely a problem anymore due to these 3 reasons: FDIC, discount
window, mandated liquidity ratio requirements
5. the fairly recent crisis with silicon bank highlighted these risks: insolvency, liquidity and interest rate
6. a liability side shortfall will only result in change of the composition of
the balance sheet with this source of liquidity: purchased liquidity - liability side source of funding
7. prepayment risk will increase when interest rates move in this direction: -
when they decrease
8. a positive repricing gap, more RSA > RSL, exposes an FI to this type of risk that is concerned with:
reinvestment risk, concerned with rates going down
9. these are a system to gauge a borrowers creditworthiness: the five C's of credit
10.how does the repricing gap model help a financial institution manage its interest rate risk: the purpose is to
help an FI know that if the interest rate changes how it will effect their interest income - they will know what impact
over what period
11.this specific type of credit risk can be reduced by holding a large number of loans: unsystematic credit risk
12.: spread effect
13.describe how a pass-through security is different from a CMO: CMOs have tranches that have a priority of
prepayment of principal
14.current banking crisis highlighted these three things: insolvency, liquidity, interest rate risk
15.specific type of credit that affects all borrowers: systematic aka market risk
16.using purchased liquidity, to fund asset side how does the balance sheet change: changes the composition and
size
17.for a positive gap and decrease in interest rates, a negative spread affect-
1/
5
, Finance 510 - Review Questions
: downward
18.a loan sale w/ recourse owuld increase this risk to an FI: off-balance sheet risk
19.prepayment risk will increase when interest rates: decrease
20.an asset that isn't rate sensitive or fixed rate: non earning asset
2/
5
