Interest rate risk effects
[DOC File]Overview
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(10) 5-year floating-rate CDs with annual repricing (11) Common stock Repricing gap is the difference between the rate sensitivity of each asset and the rate sensitivity of each liability: RSA – RSL. Measuring Interest Rate Risk with GAP. Example: A bank makes a $10,000 four-year car loan to a customer at fixed rate of 8.5%.
[DOC File]University of Kansas
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In an interest rate swap, a financial institution has agreed to pay 3.6% per annum and to receive three-month LIBOR in return on a notional principal of $100 million …
[DOC File]Asset/Liability Management
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Alternatively, the bank could use interest rate futures contracts to hedge a potential increase in interest rates and its price effects on a mortgage portfolio. In this case sell T-bond futures contracts and, if rates rise, gains on futures position would offset losses in cash (mortgage) position.
[DOC File]MMC Sensitivity to Market Risk Exam Procedures.doc
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11 Review Rate Sensitivity policies. Policy guidance may be incorporated within Liquidity, Loan, Investment, Interest Rate Risk (IRR) or other policies, but taken as a whole, should provide sufficient guidance to management relative to the board's risk tolerances and oversight responsibilities.
[DOC File]Overview
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Managing Interest Rate Risk (I) Interest Rate Risk. The potential loss from unexpected changes in interest rates which can significantly alter a bank’s profitability and market value of equity. When a bank’s assets and liabilities do not reprice at the same time, the result is a change in net interest income.
[DOCX File]Bookletter Interest Rate Risk Management Guidance for ...
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Interest rate risk is the risk that changes in interest rates could adversely affect an institution’s financial condition and performance. Interest rate risk is generally measured as the sensitivity of an institution’s cash flows, earnings, and economic value to changes in interest rates.
[DOC File]Convexity Bias in the Pricing of Interest Rate Swaps
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If there is a significantly higher default risk in swaps, then the pricing of swaps should incorporate it, and the market swap rate should be correspondingly higher. Yet, as Litzenberger (1992) first observed, the default risk of interest rate swaps is significantly mitigated by several factors:
[DOC File]Interest Rate Sensitivity of Bank Stock Returns:
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Yourougou (1990) found the interest rate risk to be high during a period of great interest rate volatility (post-October 1979) but low during a period of stable interest rates (pre-October 1979). Choi, Elyasiani and Kopecky (1992) tested a three-factor model of bank stock returns using market, interest and exchange rate variables.
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