FIN 564 Management of Financial Institutions Week 5 Quiz Answers – Homeworkmade

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FIN 564 Week 5 Quiz (Keller)

1. (TCO E & F) A bank is facing a forecast of rising interest rates. How should they set the repricing and duration gap?

(TCO E & F) Weaknesses of the repricing model include I. it ignores changes in present values caused by changes in interest rates. II. it ignores different cash flow sensitivities within a maturity bucket. III . it fails to account for runoffs and prepayments.

1. (TCO E & F) A micro hedge is a
2. (TCO E & F) A forward contract
3. (TCO E & F)  You own a mortgage backed security and you will receive fixed semiannual interest payments and no principal payments as long as prepayments remain within a given range. If prepayments move outside the range you will receive prepayments. You must be holding a _____.