Question
Consider a Financial Institution with the following assets and liabilities. Asset A has a maturity of 4 years and a market value of $20,000 and
Consider a Financial Institution with the following assets and liabilities. Asset A has a maturity of 4 years and a market value of $20,000 and asset B has a maturity of 8 years and a market value of $40,000. Liability A has a maturity of 1 year and a market value of $60,000 and liability B has a maturity of 9 years and a market value of $40,000. What is the maturity gap of this FI?
In comparison to a typical commercial bank, an investment bank is likely to have a:
Group of answer choices
higher equity multiplier
higher reliance on retail deposits.
lower leverage ratio
higher levels of capital.
lower volatility for Return on Equity
A financial institution that holds more short-term assets relative to long-term liabilities is:
Group of answer choices
exposed to reinvestment risk and market value risk.
exposed to reinvestment risk.
exposed to refinancing risk and market value risk.
exposed to market value risk.
exposed to refinancing risk.
How can a negative leverage adjusted duration gap of 0.23 years be interpreted?
Group of answer choices
The financial institutions exposure will depend on its maturity gap.
The financial institution is exposed to refinancing risk.
The financial institution is exposed to decreasing interest rates because it has a negative leverage adjusted duration gap of 0.23 years.
The financial institution is exposed to increasing interest rates because it has a negative leverage adjusted duration gap of 0.23 years.
The financial institution is not exposed to interest rate changes since the duration gap is negative.
A financial institution expects interest rates to increase in the future. What kind of maturity gap should the financial institution aim for to increase the value of its equity?
Group of answer choices
Negative
The answer depends on whether the financial institution pursues an aggressive management strategy
Positive
The answer depends on whether the financial institution pursues a passive management strategy
Neutral
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