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Q7 ) What is the repricing gap? In using this model to evaluate interest rate risk, what is meant by rate sensitivity? On what financial
Q7 ) What is the repricing gap? In using this model to evaluate interest rate risk, what is meant by rate sensitivity? On what financial performance variable does the repricing model focus? Explain. The following is the balance sheet of MNA BANK (in millions of dollars) Assets 1. Cash and due from $ 10 2. Short-term consumer loans(one-year maturity) 35 3. Long-term consumer loans(two-year maturity) 25 4. Three-month T-bills 50 5. Six-month T-notes 35 6. Three-year T-bonds 60 7.10-year fixed-rate mortgages 20 8.30-year floating-rate mortgages 40 9. Premises 20 Liabilities and owners' equity: 1. Two-year time deposits 2. Demand deposits 3. Passbook savings 4. Three-month CDs 5. Three-month banker's acceptances 6. Six-month commercial paper 7. One-year time deposits 8. Equity capital (fixed) $ 25 45 30 60 20 60 20 35 A- calculate the cumulative gap? (2 marks) B- Suppose that the interest rates fall by 1.25 percent on RSAs and by 2 percent and 1.35 percent on RSLs. Calculate the change in NII ? (2 marks)
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