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a) What is Interest Rate Risk? Mention and explain the various sources of interest rate risk in a typical banking book. b) XYZ Bank has
a) What is Interest Rate Risk? Mention and explain the various sources of interest rate risk in a typical banking book. b) XYZ Bank has the following balance sheet extract as at 31st March 2020: The duration of the assets is 7 years and that of the customer deposits is 5 years. The bank expects interest rate to rise by 100bps in the next 1 year and are worried about the impact on their capital. The current interest rate for the 1 year tenor is 17%. i) Calculate the impact of the rate increase on the banks capital ii) Prepare the banks new balance sheet assuming the market rate rises as predicted
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