Earnings-at-risk:
A) considers only interest rate "shocks."
B) is only an effective measure for 90 day intervals or less.
C) examines the change in asset composition, given a change in bank liabilities.
D) examines the variation in net interest income associated with various changes in interest rates.
E) None of the above.

Question

Quizplus · Accepted Answer

Earnings-at-risk (EAR) examines the variation in net interest income associated with various changes in interest rates. It is a measure of a bank's exposure to interest rate risk and helps in managing balance sheet risk. Therefore, option D is the correct answer. Option A is incorrect as EAR examines all types of interest rate changes, not just shocks. Option B is incorrect since EAR can be calculated for any desired period. Option C is incorrect as it does not capture the overall risk exposure of a bank to interest rate changes. Option E is incorrect as there is a correct choice given.

Earnings-At-Risk