Which of the following statements is TRUE?A.A positive repricing gap implies that a decrease in interest rates will cause interest expense to decrease more than the decrease in interest income. B.When the Reserve Bank finds it necessary to slow economic activity, it allows interest rates to fall. C.The repricing model estimates the difference between interest earned and interest paid during a given period of time. D.The repricing model is a simplistic approach to focusing on the exposure of net interest income to changes in market levels of interest rates for given maturity periods. E.If the average maturity of assets is 4 years and the average maturity of liabilities is 4 years, then the FI has no interest rate risk exposure.

Which of the following is a weakness of the repricing model to measure interest rate risk? A.It ignores how changes in interest rates affect the market value of assets and liabilities.B.All of the options.C.Potential for overaggregation of assets and liabilities within each maturity bucket.D.It ignores the reinvestment of loan interest and principal payments that are reinvested at current market rates.E.It fails to recognize off-balance-sheet activities that may be rate-sensitive.

Which of the following statements is FALSE?A.The maturity bucket is the time window over which the dollar amounts of assets and liabilities are measured.B.If an FI wants to increase its repricing gap, it can replace its equity with demand deposits.C.If an FI wants to increase its repricing gap, it can replace fixed-rate loans with rate-sensitive loans.D.The repricing gap is a measure of the difference between the dollar value of assets that will reprice and the dollar value of liabilities that will reprice within a specific time periodE.According to the CGAP effect, when CGAP is positive the change in net interest income is positively related to the change in interest rates.

Which of the following statements is FALSE?The spread effect demonstrates that, regardless of the direction of a change in market interest rates, a positive relation exists between the changes in spread and changes in net interest income.The repricing model ignores market value effects of interest rate changes. If you were the manager of an FI and expected interest rates to increase, you would create a negative repricing gap. Equal changes in interest rates on rate-sensitive assets (RSAs) and rate-sensitive liabilities (RSLs) means that the interest rate spread between RSAs and RSLs remains unchanged. According to the cummulative gap (CGAP) effect, when CGAP is positive, the change in net interest income (NII) of an FI is positively related to the change in interest rates.

Assume you are the manager of an FI, how would you structure your balance sheet using the repricing gap model if you expected interest rates to fall?A.I would create either a positive gap or a negative gap.B.I would create both a positive gap and a negative gap.C.I would create a positive gap.D.I would create a negative gap.E.I would create a neutral gap.

In the Classical Model of a Closed Economy, which of the following statements is true regarding the relationship between savings, investment, and interest rates?A.A decrease in household savings will directly lead to an increase in the national interest rate.B.Investment is entirely determined by consumer preferences and has no relationship with interest rates.C.In the equilibrium, total savings in the economy will always be equal to total investments regardless of the interest rate.D.Higher interest rates always lead to higher savings as households prefer to consume less and save more.