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Explain How Interest Rate Risk Could Change at Banks,thrifts,and Other

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Essay

Explain how interest rate risk could change at banks,thrifts,and other institutions that originate and sell fixed-rate mortgages but are funded with deposits if these institutions lose the ability to securitize and sell mortgages. What could be the effect on the economy?


Definitions:

Variance

A statistical measure of the dispersion of returns for a given security or market index, often used to gauge volatility.

Fairly Priced Securities

Securities that are priced accurately based on their inherent risk and expected return.

Alphas

The excess returns of an investment relative to the return of a benchmark index, indicating the added value by the portfolio manager.

Betas

A measure of a stock's volatility relative to the overall market; a reflection of its risk compared to the market.

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