1) If interest rates rise by 5 percentage points, say from 10 to 15%, bank profits (measured using gap analysis) will
A) decline by $0.5 million.
B) decline by $1.5 million.
C) decline by $2.5 million.
D) increase by $2.0 million.
2) Assuming that the average duration of its assets is four years, while the average duration of its liabilities is three years, then a 5 percentage point increase in interest rates will cause the net worth of First National to ________ by ________ of the total original asset value.
A) decline; 5 percent
B) decline; 10 percent
C) decline; 15 percent
D) increase; 20 percent
3) Duration analysis involves comparing the average duration of the bank”s ________ to the average duration of its ________.
A) securities portfolio; non deposit liabilities
B) assets; liabilities
C) loan portfolio; deposit liabilities
D) assets; deposit liabilities
4) Because of an expected rise in interest rates in the future, a banker will likely
A) make long term rather than short term loans.
B) buy short term rather than long term bonds.
C) buy long term rather than short term bonds.
D) make either short or long term loans; expectations of future interest rates are irrelevant.