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CMA Final · Risk Management in Banking and Insurance · Interest Rate Risk Management

Under the Basel framework on interest rate risk in the banking book (IRRBB), the two complementary perspectives used to measure the impact of rate changes are:

Basel's IRRBB framework uses the earnings perspective, which looks at the change in net interest income, and the economic value perspective, which looks at the change in economic value of equity. Together they capture short-term and long-term effects of rate changes on the banking book.

  1. AEarnings perspective (change in net interest income) and economic value perspective (change in EVE)Correct
  2. BCredit perspective and liquidity perspective
  3. CStandardised approach and foundation IRB approach
  4. DValue at Risk and expected shortfall of the trading book

Explanation

IRRBB standards require banks to assess both the earnings effect (NII, over a short horizon) and the economic value of equity effect (present value of the banking book cash flows). The other pairs relate to credit, liquidity, or trading book market risk measurement.

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