Interest rate risk 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 66 rapid-fire Q&A cards.
What is Interest Rate Risk in the context of bank balance sheet management?
Interest Rate Risk (IRR) is the risk that changes in market interest rates will adversely affect a bank's net interest income (NII) or the economic value of its equity (EVE).
What is the primary objective of interest rate risk management in banks?
To protect net interest income and economic value from rate fluctuations.
What are the two main perspectives used to measure interest rate risk?
The two perspectives are the Earnings Perspective (impact on NII over a short horizon) and the Economic Value Perspective (impact on the net present value of all cash flows, i.e., EVE).
What is the repricing gap in interest rate risk management?
Difference between rate-sensitive assets and liabilities repricing in a period.
What is the Earnings at Risk (EaR) concept in interest rate risk management?
Earnings at Risk (EaR) measures the potential decline in Net Interest Income (NII) due to adverse interest rate movements over a specified time horizon, typically one year.
How is the cumulative gap used to assess interest rate risk exposure?
It sums gaps across multiple time buckets to show overall repricing imbalance.
What does the term 'repricing risk' mean in interest rate risk management?
Repricing risk arises from timing mismatches between the maturity or repricing of assets, liabilities, and off-balance-sheet positions when interest rates change.
What is the Macaulay Duration of a bond?
Weighted average time to receive all cash flows of a bond.
Video classes for this chapter
Interest rate risk management
Interest Rate Risk Management
INTEREST RATE RISK MANAGEMENT PART 1
INTEREST RATE RISK MANAGEMENT PART 2
Interest Rate Risk Management
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