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6. a) Discuss the impact of interest rate risk on banks. (8 marks) b) Consider the following balance sheet of Robobank: Assets () Duration Liabilities () Duration Variable-rate Money market mortgages 1300 8.1 deposits 1000 0.7 Fixed-rate mortgages 1200 6.1 Savings deposits 3000 2.3 Commercial loans 3000 4.2 Variable-rate CD 1. (>1 year) 1000 1.2 Physical capital 500 Equity 1000 Total 6000 Total 6000 Make the following assumptions on the runoff of cash flows: fixed-rate mortgages repaid during the year: 10 percent; proportion of savings deposits and variable- rate CD that are rate-sensitive: 20 per cent. Calculate the impact of an increase in interest rates from 3% to 4% on the net interest income of Robobank. (5 marks) c) Calculate the impact of a decrease in interest rates from 3% to 2% on the equity of Robobank marks) (7 d) Explain why banks have positive duration gaps