CMA Final · Risk Management in Banking and Insurance · Interest Rate Risk Management
A bank's one-year time bucket shows rate sensitive assets of Rs 840 crore and rate sensitive liabilities of Rs 960 crore. Total assets are Rs 6,000 crore. If rates rise by 1% across the board for this bucket, what is the approximate change in net interest income for the year?
Net interest income falls by about Rs 1.2 crore. The one-year gap is negative Rs 120 crore (840 minus 960), and multiplying this gap by a 1% rate rise gives a reduction of Rs 1.2 crore.
- AIncrease of Rs 1.2 crore
- BDecrease of Rs 1.2 croreCorrect
- CDecrease of Rs 12 crore
- DIncrease of Rs 12 crore
Explanation
Gap = 840 - 960 = -120 crore (negative). Change in NII = Gap x change in rate = -120 x 1% = -1.2 crore. Increase options have the wrong sign, and Rs 12 crore uses 10% instead of 1%.
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