Mergers

MANAGING INTEREST RATE RISK: DURATION time out AND stinting VALUE OF EQUITY
A fundamental criticism of GAP and earnings-sensitivity abridgment is that they emphasize a edges risk visibleness over the short run and largely ignore interchange flows beyond one or two years. Yet, a banks assets and liabilities may be substantially mismatched beyond two years and thus exhibit considerable risk, which goes undetected. term spread and economic entertain of equity sensitivity synopsis represent alternative methods of analyzing interest group charge per unit risk. They emphasize the cost sensitivity of assets and liabilities to changes in interest rates and the corresponding tinct on stockholders equity. The analyses incorporate estimates of the length of assets and duration of liabilities, which reflect the value of promised cash flows through final maturity. They therefore provide a comprehensive measure of the interest rate risk collective in the entire balance winding-clothes of a bank. In most cases, the implications concerning when banks win and lose are comparable to those of GAP and earnings-sensitivity analysis, but the magnitude of the estimated effects may differ sharply.




This ride examines the management of a banks interest rate risk position in terms of duration recess and the sensitivity of the market value of stockholders equity to changes in interest rates. In this framework, interest rate risk refers to the volatility in the market value of stockholders equity attributable to changes in the train of interest rates and associated changes in balance sheet and off-balance sheet mix and volume. A bank that assumes substantial risk will see its value of equity rise or illuminate sharply when interest rates change unexpectedly.
Duration gap analysis represents an application of duration concepts to a banks entire balance sheet. The model builds on Macaulays duration applied to single securities. It parallels static GAP and earnings-sensitivity analysis in the sense that both duration gap and the...If you want to contribute a full essay, order it on our website: Orderessay



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