Describe Two General Forms of Interest Rate Risk Faced by Banks

question 21

Essay

Describe two general forms of interest rate risk faced by banks.

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Definitions:

Units-of-Activity Method

A depreciation technique that calculates the depreciation of an asset based on its usage, activity, or units produced instead of time.

Depreciation Rates

Percentages or methods used to systematically reduce the book value of a tangible asset over its useful life.

Double-Declining-Balance

An accelerated depreciation method that doubles the straight-line depreciation rate, reducing the asset's book value more quickly.

Straight-Line

A method of calculating depreciation of an asset, which allocates an equal amount of depreciation each year over the asset's useful life.