What interest rate exposure a financial institution would have if (i) it has a negative repricing gap and (ii) it has a positive repricing gap?

 

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Assets ($ million) Cash T-notes 2 months (7.05%) T-notes 3 months (7.25%) T-notes two-year (7.50%) T-notes 10-year (8.96%) Corporate bonds (>5 years to maturity) Total assets $ +A 30 60 80 60 100 25 355 Liabilities ($ million) Overnight interbank borrowing (7.00%) 2-year CD (5%) 7-year fixed rate Subordinated debt (8.55%) Equity Total liabilities and Equity $ +A 160 20 150 25 355 Assets ($ million) Cash T-notes 2 months (7.05%) T-notes 3 months (7.25%) T-notes two-year (7.50%) T-notes 10-year (8.96%) Corporate bonds (>5 years to maturity) Total assets $ +A 30 60 80 60 100 25 355 Liabilities ($ million) Overnight interbank borrowing (7.00%) 2-year CD (5%) 7-year fixed rate Subordinated debt (8.55%) Equity Total liabilities and Equity $ +A 160 20 150 25 355

Answer rating: 100% (QA)

Answer Interest rate exposure refers to the sensitivity of a financial institutions earnings and economic value to changes in interest rates It can be ... View the full answer