Liquidity Management
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Bank Financial Management — CAIIB.
One-liners from this chapter
Free sample — 8 of 121 rapid-fire Q&A cards.
Define Interest Rate Risk (IRR) in banking.
Exposure of a bank's financial condition to adverse movements in interest rates affecting earnings and capital.
What are the two distinct ways interest rate changes affect banks?
Earnings effect (NII/NIM change) and Value effect (present value of cash flows change).
Why is maturity mismatch dangerous for banks?
Rising rates cause asset values to fall more than liabilities, exposing bank to economic loss and insolvency risk.
Define Gap (Mismatch) Risk.
Risk from holding assets and liabilities with different principal amounts, maturity dates or repricing dates.
What is Basis Risk in interest rate context?
Risk that different assets and liabilities repricing rates change in different magnitudes, compressing spreads.
How does Net Interest Position Risk arise when RSA > RSL?
NII falls when rates decline, expands when rates rise, due to more interest-earning assets than cost-bearing liabilities.
Explain Embedded Option Risk with loan prepayment.
Borrowers prepay loans when rates fall, reducing bank's NII; depositors close TDs and re-fix at higher rates when tightening.
What is Yield Curve Risk?
Risk from changes in yield curve slope and shape across different maturities due to business cycle and RBI intervention.
MCQ practice tests
Chapter-wise mock tests with instant scoring.
PDF study notes
More chapters in Module D - Balance Sheet Management
Master the full BFM syllabus
Every chapter of Bank Financial Management — videos, tests, notes and one-liner decks in one place.