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Question
In terms of profitability, a well-run bank usually has an ROA of
A. 0.5-3%
B. 3-5%
C. 5-10%
D. 10-15%
E. 15-20%
Answer
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Related questions
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Due to convexity problems, banks are actually better off using the simpler repricing model to manage interest rate risk rather than the duration model.
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The cash flow from the interest a bank receives on a long-term loan that is normally reinvested is called the runoff from the loan.
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If a bank has a negative repricing gap, falling interest rates increase profitability.
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In a bank's three-month maturity bucket, a 30-year ARM with a rate reset in six months would be considered a fixed rate asset, but in its one-year maturity bucket, this ARM would be considered a rate-sensitive asset.
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Explain how liquidity risk can lead to insolvency risk.
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