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MEASUREMENT OF INTEREST RISK
What is interest rate risk in the context of banking book exposures?
Interest rate risk is the risk that changes in market interest rates will adversely affect a bank's financial condition, impacting both earnings and economic value of equity.
What is the Macaulay Duration of a zero-coupon bond equal to?
Its maturity period or time to maturity
What does the term 'Duration' measure in the context of interest rate risk?
Duration measures the weighted average time to receive all cash flows of a financial instrument, and is used to estimate the price sensitivity of a bond to changes in interest rates.
What is the primary limitation of gap analysis as an interest rate risk tool?
It ignores time value of money and cash flow within buckets
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