MEASUREMENT OF INTEREST RISK
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Risk Management (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
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
How is Modified Duration different from Macaulay Duration?
Modified Duration is derived by dividing Macaulay Duration by (1 + yield/n) and directly measures the percentage change in bond price for a 1% change in yield.
What does a positive repricing gap indicate for a bank?
Rate-sensitive assets exceed rate-sensitive liabilities in that bucket
What is the repricing gap and how is it used in interest rate risk measurement?
The repricing gap is the difference between rate-sensitive assets and rate-sensitive liabilities within a given time bucket; a positive gap means NII rises when rates rise, and falls when rates fall.
What is the unit of measurement for DV01 or PVBP?
Rupees or dollars per basis point change in yield
Video classes for this chapter
More chapters in Module C - Market Risk and Liquidity Risk Management
Master the full RM syllabus
Every chapter of Risk Management (Elective) — videos, tests, notes and one-liner decks in one place.