The duration analysis of the bank which have $100 billion of assets with average duration of 4 years and $90 billion of liabilities with average duration of 6 years and the impact on net worth of the bank if interest rate rise by 2% points. What are the actions required to reduce the bank’s interest-rate risk? Concept Introduction: Duration analysis is the process of analyzing the risk of interests to a bank’s net worth. When interest rates turn volatile or if there is any unannounced or sudden change in the rate of interest, the net worth of a bank will face high risks. Net worth of the bank is derived from the difference between what is claimed by or owed to the bank. The net worth of the bank provides a clear picture of its financial condition. Total liabilities minus total assets of the bank give us its net worth. The interest-rate risk refers to the risk associated with an investment's value that may change due to a fluctuation in the absolute level of interest rates.

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Chapter 9, Problem 24AP

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The duration analysis of the bank which have $100 billion of assets with average duration of 4 years and $90 billion of liabilities with average duration of 6 years and the impact on net worth of the bank if interest rate rise by 2% points. What are the actions required to reduce the bank’s interest-rate risk?

Concept Introduction:

Duration analysis is the process of analyzing the risk of interests to a bank’s net worth. When interest rates turn volatile or if there is any unannounced or sudden change in the rate of interest, the net worth of a bank will face high risks.

Net worth of the bank is derived from the difference between what is claimed by or owed to the bank. The net worth of the bank provides a clear picture of its financial condition. Total liabilities minus total assets of the bank give us its net worth.

The interest-rate risk refers to the risk associated with an investment's value that may change due to a fluctuation in the absolute level of interest rates.

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