Which of the Following Is a Weakness of the Repricing

question 56

Multiple Choice

Which of the following is a weakness of the repricing model to measure interest rate risk?

• A)Potential for over-aggregation of assets and liabilities within each maturity bucket.
• B)It ignores how changes in interest rates affect the market value of assets and liabilities.
• C)It ignores the reinvestment of loan interest and principal payments that are reinvested at current market rates and it fails to recognise off-balance-sheet activities that may be rate sensitive.
• D)All of the listed options are correct.

---

Definitions:

Risk-Free Rate

The return on an investment with no risk of financial loss, typically associated with government bonds.

Expected Inflation

The anticipated rate at which prices of goods and services will rise over a period.

Spot Rate

The prevailing market rate at which a specific asset is available for purchase or sale with immediate effect.

Real Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing and the true return on lending.