Interest Rate Risk

Which of the following is a type of conventional monetary policy tools?

• Corporate sector purchase programme

• Marginal lending facility

• Targeted Long-Term Refinancigng Operations

• Public Sector Purchase Programme

Which of the following is a definition of Refinancing Risk?

• The risk that the return on funds to be reinvested will be higher than the cost of funding

• The risk that an interest rate falls and the maturity of assets is shorter than maturity of liabilities

• The risk that the cost of reborrowing will be higher than return on investments

• The risk that interest rates will not change and the maturity of assets is longer than liabilities

When CGAP is positive, interest rates increase, and maturities remain constant:

• NNI falls

• NNI increases

• The effect on NII cannot be determined

• Neither answer is correct

When does duration of an asset equals its maturity?

• Never

• When asset is a zero-coupon bond

• When asset produces multiple cash flows but only during one year

• When maturity of asset is more than one year but only one cash flow is received per year

Which of the following is a problem when estimating interest rate risk using repricing model?

• Ignoring off-balance sheet items

• Overaggregation

• Ignoring runoffs effect

• All answers are correct

In a hypothetical bucket value of assets is $100 and value of liabilities is $75. What is the effect of interest rates falling by 2% on banks' net interest income?

• -$0.25

• -$0.5

• $0.5

• $25