Importance of Interest Rate Risk

Importance of Interest Rate Risk - Importance of Interest...

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Importance of Interest Rate Risk 1 Banks spend a lot of time trying to predict: Factors that determine the direction and level of interest rates. What causes interest rates to move.
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Macroeconomic Factors / Rates 2 Monetary Policy - The Fed sets short-term rates to control Inflation - Rates increase as things get more expensive. Strength of the Economy - The stronger the economy, the demand for loans increases as do rates. United State Inflation Rate
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Measuring the Asset-Liability Gap 3 Due to rate volatility, it is critical that FIs measure exposure from a mismatched maturity book. The models include: Repricing (or Funding Gap) Model – Chapter 8 This model is used by small FIs (> 90% are small). Maturity Model – Chapter 9 Duration Model – Chapter 9
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Repricing Model 4 Rate sensitive assets (loans) and rate sensitive liabilities (deposits) are identified.
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This note was uploaded on 01/26/2012 for the course FIN 4620 taught by Professor Patriciarobertson during the Spring '12 term at Kennesaw.

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Importance of Interest Rate Risk - Importance of Interest...

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