Which of the Following Is Not a Weakness of the Repricing

question 41

Multiple Choice

Which of the following is not 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)It ignores how changes in currency exchange rates affect the market value of assets and liabilities.

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Definitions:

Interest Rate

The percentage charged on a loan or paid on savings, representing the cost of borrowing or the reward for saving.

Present Value

The present value of an anticipated amount of money or series of payments, considering a certain rate of return.

Net Present Value

Net Present Value (NPV) is a method used in capital budgeting to evaluate the profitability of an investment or project, calculating the difference between the present value of cash inflows and outflows over a period of time.

Interest Rate

The fraction of a loan subject to interest charges to the borrower, usually shown as an annual percentage of the remaining loan balance.