[BM] Chap 8

1. The economic insolvency of many thrift institutions during the 1980s was due, at least in part, to unexpected increases in interest rates.

• True

• False

2. Because of its complexity, small depository institutions rarely use the repricing, or funding gap, model.

• True

• False

3. When the Fed finds it necessary to slow economic activity, it allows interest rates to fall.

• True

• False

4. Because the increased level of financial market integration has increased the speed with which interest rate changes are transmitted among countries, control of U.S. interest rates by the Federal Reserve is more difficult and less certain.

• True

• False

5. The Bank for International Settlements (BIS) requires depository institutions to have interest rate risk management systems.

• True

• False

6. The repricing gap model is a book value accounting based model.

• True

• False

7. The maturity gap model estimates the difference between interest earned and interest paid during a given period of time

• True

• False

8. In the repricing gap model, assets or liabilities are rate sensitive within a given time period if the dollar values of each are subject to receiving a different interest rate should market rates change.

• True

• False

9. 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

• True

• False

10. A positive repricing gap implies that a decrease in interest rates will cause interest expense to decrease more than the decrease in interest income.

• True

• False