Week06 - Ch08 - Interest rate risk - the repricing model

Week06 - Ch08 - Interest rate risk - the repricing model -...

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Interest Rate Risk: The Repricing Model
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7-2 Overview This chapter explains how a third model of measuring an FI’s exposure to interest rates, the repricing model, works. We will examine the particular strengths of the model. We will discuss the particular weaknesses of the model. We will gain an understanding of the relative merits of the repricing model for banks, compared to the maturity model and to the duration model.
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7-3 A few definitions Rate sensitivity assets and liabilities: assets and liabilities whose interest rates will be repriced (changed) over some future period Repricing date: the date on which the interest rate changes 5-year variable rate loans with interest rate adjusted every 6 months Repricing gap : RSA - RSL
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7-4 Rate-Sensitive Assets Examples: Short-term loans. T-Notes (of various maturities). Floating-rate long-term loans. The question to ask is: Will or can this asset have its interest rate changed within a specified time? Yes? Rate-sensitive. No? Not rate-sensitive.
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Rate-Sensitive Liabilities Examples: Term deposits (of various maturities). Bankers’ acceptances. Negotiable certificates of deposits (NCDs). The question to ask is: Will or can this liability have its interest rate changed within a specified time? Yes? Rate-sensitive.
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Week06 - Ch08 - Interest rate risk - the repricing model -...

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