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.

What is the spread effect? A.The premium paid to compensate for the future uncertainty in a security's value.B.The effect of mismatch of asset and liabilities within a maturity bucket.C.The value of an FI to its owners.D.Periodic cash flow of interest and principal amortization payments on long-term assets that can be reinvested at market rates.E.The effect that a change in the spread between rates on rate-sensitive assets (RSAs) and rate-sensitive liabilities (RSLs) has on net interest income as interest rates change.

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.

As the level of interest rates in the economy falls, the demand for money, other things being equal,a.Will fall more or less in line with the change in interest ratesb.Will remain unchangedc.Increased.Could move in either direction depending on other factors

True or False QuestionTrue or false: Interest rates are rationing devices.True false question.TrueFalse

True or False QuestionTrue or false: Interest rate risk is the result of changes in the interest rates in the economy.True false question.TrueFalse