Question 5 (20 marks) (a) Discuss the impact of interest rate risk on banks. (6 marks) (b) Consider the following balance sheet of Arrow-bank: 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 Arrow-bank. (4 marks) (c) Calculate the impact of a decrease in interest rates from 3% to 2% on the equity of Arrow-bank. (6 marks) (d) Explain why the calculation in part (c) only provides an estimate of the change in the value of equity. (4 marks)