1. What is interest rate risk? 2. Which accounts are banks worried about more when interest...

 

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1. What is interest rate risk? 2. Which accounts are banks worried about more when interest rates increase: Loans or Deposits? Why? 3. Which accounts are banks worried about more when interest rates decrease: Loans or Deposits? Why? 4. Which type of account typically has a longer maturity: Loans or Deposits? 5. Which type of account should reset more frequently: Loans or Deposits? a. True or False: Loans generate interest income and Deposits generate interest expense. b. If interest rates increase, which should react quicker: Interest income or Interest Expense? C. Should this be favorable or unfavorable to the bank? Why? d. What impact would the interest rate increase have on the bank's net income? e. If interest rates decrease, which should react quicker: Interest Income or Interest Expense? f. Should this be favorable or unfavorable to the bank? Why? g. What impact would the interest rate decrease have on the bank's net income? (FYI, c-d pertains to Funding Risk) 6. What is funding risk? 7. What is investing risk? 8. When was the S&L Crisis? Where was the S&L Crisis? 1. What is interest rate risk? 2. Which accounts are banks worried about more when interest rates increase: Loans or Deposits? Why? 3. Which accounts are banks worried about more when interest rates decrease: Loans or Deposits? Why? 4. Which type of account typically has a longer maturity: Loans or Deposits? 5. Which type of account should reset more frequently: Loans or Deposits? a. True or False: Loans generate interest income and Deposits generate interest expense. b. If interest rates increase, which should react quicker: Interest income or Interest Expense? C. Should this be favorable or unfavorable to the bank? Why? d. What impact would the interest rate increase have on the bank's net income? e. If interest rates decrease, which should react quicker: Interest Income or Interest Expense? f. Should this be favorable or unfavorable to the bank? Why? g. What impact would the interest rate decrease have on the bank's net income? (FYI, c-d pertains to Funding Risk) 6. What is funding risk? 7. What is investing risk? 8. When was the S&L Crisis? Where was the S&L Crisis?

Answer rating: 100% (QA)

Answer Interest rate risk refers to the risk that changes in interest rates will affect the value of assets and liabilities differently leading to potential losses for individuals or institutions hold... View the full answer