商业银行管理ROSE7e课后答案chapter07.docx

商业银行管理ROSE7e课后答案chapter07.docx

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商业银行管理ROSE7e课后答案chapter07

CHAPTER7

ASSET-LIABILITYMANAGEMENT:

DETERMININGANDMEASURINGINTERESTRATESANDCONTROLLINGINTEREST-SENSITIVEANDDURATIONGAPS

GoalsofThisChapter:

Thepurposeofthischapteristoexploretheoptionsbankershavetodayfordealingwithrisk–especiallytheriskoflossduetochanginginterestrates–andtoseehowabank’smanagementcancoordinatethemanagementofitsassetswiththemanagementofitsliabilitiesinordertoachievetheinstitution’sgoals.

KeyTopicInThisChapter

∙Asset,Liability,andFundsManagement

∙MarketRatesandInterestRateRisk

∙TheGoalsofInterestRateHedging

∙InterestSensitiveGapManagement

∙DurationGapManagement

∙LimitationsofHedgingTechniques

ChapterOutline

I.Introduction:

TheNecessityforCoordinatingBankAssetandLiabilityManagementDecisions

II.Asset/LiabilityManagementStrategies

A.AssetManagementStrategy

B.LiabilityManagementStrategy

C.FundsManagementStrategy

III.InterestRateRisk:

OneoftheGreatestAsset-LiabilityManagementStrategyChallenges

A.ForcesDeterminingInterestRates

B.TheMeasurementofInterestRates

1.YieldtoMaturity

2.BankDiscountRate

C.TheComponentsofInterestRates

1.RiskPremiums

2.YieldCurves

3.TheMaturityGapandtheYieldCurve

D.ResponsetoInterestRateRisk

IV.OneoftheGoalsofInterest-RateHedging

A.TheNetInterestMargin

B.Interest-SensitiveGapManagement

1.Asset-SensitivePosition

2.Liability-SensitivePosition

3.DollarInterest-SensitiveGap

4.RelativeInterestSensitiveGap

5.InterestSensitivityRatio

6.Computer-BasedTechniques

7.CumulativeGap

8.StrategiesinGapManagement

C.DurationGapManagement

V.TheConceptofDuration

A.DefinitionofDuration

B.CalculationofDuration

C.NetWorthandDuration

D.PriceRiskandDuration

E.ConvexityandDuration

VI.UsingDurationtoHedgeAgainstInterest-RateRisk

A.DurationGap

1.DollarWeightedDurationofAssets

2.DollarWeightedDurationofLiabilities

3.PositiveDurationGap

4.NegativeDurationGap

B.ChangeintheBank’sNetWorth

VII.TheLimitationsofDurationGapManagement

VIII.SummaryoftheChapter

ConceptChecks

7-1.Whatdothefollowingtermsmean:

Assetmanagement?

Liabilitymanagement?

Fundsmanagement?

Assetmanagementreferstoabankingstrategywheremanagementhascontrolovertheallocationofbankassetsbutbelievesthebank'ssourcesoffunds（principallydeposits）areoutsideitscontrol.Liabilitymanagementisastrategyofcontroloverbankliabilitiesbyvaryinginterestratesofferedonborrowedfunds.Fundsmanagementcombinesbothassetandliabilitymanagementapproachesintoabalancedliquiditymanagementstrategy.

7-2.Whatfactorshavemotivatedfinancialinstitutionstodevelopfundsmanagementtechniquesinrecentyears?

Thenecessitytofindnewsourcesoffundsinthe1970sandtheriskmanagementproblemsencounteredwithtroubledloansandvolatileinterestratesinthe1970sand1980sledtotheconceptofplanningandcontroloverbothsidesofabank'sbalancesheet--theessenceoffundsmanagement.

7-3.Whatforcescauseinterestratestochange?

Whatkindsofriskdofinancialfirmsfacewheninterestrateschange?

Interestratesaredetermined,notbyindividualbanks,butbythecollectiveborrowingandlendingdecisionsofthousandsofparticipantsinthemoneyandcapitalmarkets.Theyarealsoimpactedbychangingperceptionsofriskbyparticipantsinthemoneyandcapitalmarkets,especiallytheriskofborrowerdefault,liquidityrisk,pricerisk,reinvestmentrisk,inflationrisk,termormaturityrisk,marketabilityrisk,andcallrisk.

Financialinstitutionscanloseincomeorvaluenomatterwhichwayinterestratesgo.Risinginterestratescanleadtolossesonsecurityinstrumentsandonfixed-rateloansasthemarketvaluesoftheseinstrumentsfall.Fallinginterestrateswillusuallyresultincapitalgainsonfixed-ratesecuritiesandloansbutaninstitutionwillloseincomeifithasmorerate-sensitiveassetsthanliabilities.Risinginterestrateswillalsocausealosstoincomeifaninstitutionhasmorerate-sensitiveliabilitiesthanrate-sensitiveassets.

7-4.Whatmakesitsodifficulttocorrectlyforecastinterestratechanges?

Interestratescannotbesetbyanindividualbankorevenbyagroupofbanks;theyaredeterminedbythousandsofinvestorstradinginthecreditmarkets.Moreover,eachmarketrateofinteresthasmultiplecomponents--therisk-freeinterestrateplusvariousriskpremia.Achangeinanyoftheseratecomponentscancauseinterestratestochange.Toconsistentlyforecastmarketinterestratescorrectlywouldrequirebankerstocorrectlyanticipatechangesintherisk-freeinterestrateandinallratecomponents.Anotherimportantfactoristhetimingofthechanges.Tobeabletotakefulladvantageoftheirpredictions,theyalsoneedtoknowwhenthechangeswilltakeplace.

7-5.Whatistheyieldcurveandwhyisitimportantforbankerstoknowaboutitsshapeorslope?

Theyieldcurveisagraphicaldescriptionofthedistributionofmarketinterestratesbymaturityoffinancialinstrument.Theslopeoftheyieldcurvedeterminesthespreadbetweenlong-termandshort-terminterestrates.Inbankingmostofthelong-termratesapplytoloansandsecurities（i.e.,bankassets）andmostoftheshort-terminterestratesareattachedtobankdepositsandmoneymarketborrowings.Thus,theshapeorslopeoftheyieldcurvehasaprofoundinfluenceonabank'snetinterestmarginorspreadbetweenassetrevenuesandliabilitycosts.

7-6.Whatisitthatalendinginstitution’swishestoprotectfromadversemovementsininterestrates?

Afinancialinstitutionwishestoprotectboththevalueofassetsandliabilitiesandtherevenuesandcostsgeneratedbybothassetsandliabilitiesfromadversemovementsininterestrates.

7-7.Whatisthegoalofhedging?

Thegoalofhedginginbankingistofreezethespreadbetweenassetreturnsandliabilitycostsandtooffsetdecliningvaluesoncertainassetsbyprofitabletransactionssothatatargetrateofreturnisassured.

7-8.FirstNationalBankofBannervillehaspostedinterestrevenuesof$63millionandinterestcostsof$42million.Ifthisbankpossesses$700millionintotalearningassets,whatisFirstNational’snetinterestmargin?

Supposethebank’sinterestrevenuesandinterestcostsdouble,whileitsearningassetsincreaseby50percent.Whatwillhappentiitsnetinterestmargin?

NetInterest

=

$63mill.-$42mill.

=0.03or3percent

Margin

$700mill.

Ifinterestrevenuesandinterestcostsdoublewhileearningassetsgrowby50percent,thenetinterestmarginwillchangeasfollows:

（$63mill.-$42mill.）*2

=0.04or4percent

$700mill.*（1.50）

Clearlythenetinterestmarginincreases--inthiscasebyonethird.

7-9.Canyouexplaintheconceptofgapmanagement?

Gapmanagementinvolvesdeterminingthematuritydistributionandtherepricingscheduleforabank'sassetsandliabilities.Whenmoreassetsaresubjecttorepricingorwillreachmaturityinagivenperiodthanliabilitiesorviceversa,thebankhasaGAPbetweenassetsandliabilitiesandisexposedtolossfromadverseinterest-ratemovementsbasedonthegap'ssizeanddirection.

7-10Whenisafinancialinstitutionassetsensitive?

Liabilitysensitive?

Afinancialinstitutionisassetsensitivewhenithasmoreinterest-ratesensitiveassetsmaturingorsubjecttorepricingduringaspecifictimeperiodthanrate-sensitiveliabilities.Aliabilitysensitiveposition,incontrast,wouldfindthefinancialinstitutionhavingmoreinterest-ratesensitivedepositsandotherliabilitiesthanrate-sensitiveassetsforaparticularplanningperiod.

7-11.CommerceNationalBankreportsinterest-sensitiveassetsof$870millionand

interestsensitiveliabilitiesof$625millionduringthecomingmonth.Isthebankassetsensitiveorliabilitysensitive?

Whatislikelytohappentothebanksnetinterestmarginifinterestratesrise?

Iftheyfall?

Becauseinterest-sensitiveassetsarelargerthanliabilitiesby$245millionthebankisassetsensitive.

Ifinterestratesrise,thebank'snetinterestmarginshouldriseasassetrevenuesincreasebymorethantheresultingincreaseinliabilitycosts.Ontheotherhand,ifinterestratesfall,thebank'snetinterestmarginwillfallasassetrevenuesdeclinefasterthanliabilitycosts.

7-12.Peoples’SavingsBank,athriftinstitution,hasacumulativegapforthecomingyearof+$135millionandinterestratesareexpectedtofallbytwoandahalfpercentagepoints.Canyoucalculatetheexpectedchangeinnetinterestincomethatthisthriftinstitutionmightexperience?

Whatchangewilloccurinnetinterestincomeifinterestratesrisebyoneandaquarterpercentagepoints?

Forthedecreaseininterestrates:

Expected

Changein=$135million*（-0.025）=-$3.38million

NetInterestIncome

Fortheincreaseininterestrates:

ExpectedChange

inNetInterest=$135million*（+0.0125）=+$1.69million

Income

7-13Howdoyoumeasurethedollarinterest-sensitivegap?

Therelativeinterest-sensitivegap?

Whatistheinterest-sensitivityratio?

Thedollarinterest-sensitivegapismeasuredbytakingtherepriceable（interest-sensitive）assetsminustherepriceable（interest-sensitive）liabilitiesoversomesetplanningperiod.Commonplanningperiodsinclude3months,6monthsand1year.Therelativeinterest-sensitivegapisthedollarinterest-sensitivegapdividedbysomemeasureofbanksize（oftentotalassets）.Theinterest-sensitivityratioisjusttheratioofinterest-sensitiveassetstointerestsensitiveliabilities.Regardlessofwh