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(a) Explain how interest rate risk can affect a banks' net income and net worth. ( 5 marks) (b) Critically discuss the techniques that banks can use to manage interest rate risk. ( 9 marks) (c) Consider the following balance sheet of Bank Zephyr shown in table 1: Table 1 Use the following assumptions on the runoff of cash flows: fixed-rate mortgages repaid during the year: 10 per cent; proportion of savings deposits and variable rate CDs that are rate-sensitive: 15 per cent. Explain, using income gap analysis, what the change in net interest income will be at the year-end if interest rates fall by 1% per cent, from 4 to 3 per cent. (4 marks) (d) Calculate the change in net worth of Bank Zephyr if interest rates fall by 1% from 4 to 3 per cent. (7 marks)