A method of measuring the interest rate or gap exposure of an FI is
A)the duration model.
B)the maturity model.
C)the repricing model.
D)the funding gap model.
E)All of the options.

Question

Quizplus · Accepted Answer

All of the options are methods for measuring the interest rate or gap exposure of an FI, and each model has its own strengths and weaknesses depending on the specific characteristics and needs of the institution. The duration model focuses on the sensitivity of the market value of assets and liabilities to changes in interest rates, and is useful for measuring interest rate risk in a static environment. The maturity model measures the amount of cash flows that will be received or paid out at each maturity date, which can help identify potential cash flow mismatches. The repricing model focuses on the timing of interest rate changes and how this affects the income or expense on assets and liabilities with different repricing horizons. Finally, the funding gap model looks at the difference between the amount of funding that will need to be rolled over in the near future versus the amount of funding that is already locked in at a fixed rate, which can help identify potential liquidity risks.

A Method of Measuring the Interest Rate or Gap Exposure