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Introduction To Derivatives And Risk Management 10Th Edition Examination Test Complete Questions And Answers

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Introduction To Derivatives And Risk Management 10Th Edition Examination Test Complete Questions And Answers

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INTRODUCTION TO DERIVATIVES AND RISK
MANAGEMENT 10TH EDITION EXAMINATION
TEST COMPLETE QUESTIONS AND ANSWERS

◉ Floor.
Answer: Put on interest rates that hedges against falling rates; seller
pays difference when rates < floor rate.


◉ Collar.
Answer: Combination of buying a cap and selling a floor to limit rate
exposure within a band.


◉ Interest Rate Risk.
Answer: Arises when the maturity or duration of a financial
institution's assets and liabilities differ.


◉ Repricing Model (Gap Model).
Answer: Measures change in Net Interest Income (NII) for a given
rate change within time buckets.


◉ Repricing GAP.

, Answer: Calculated as Rate Sensitive Assets (RSA) − Rate Sensitive
Liabilities (RSL).


◉ Cumulative GAP (CGAP).
Answer: Sum of gaps across multiple periods.


◉ Limitations of CGAP.
Answer: Ignores market value effects (only focuses on income),
assumes all instruments reprice simultaneously, ignores
prepayments/runoffs and off-balance-sheet items.


◉ Duration (D).
Answer: Weighted average time to receive cash flows; measures
interest rate sensitivity.


◉ %ΔP.
Answer: Approximation formula for price change: %ΔP≈−D×ΔR1+R.


◉ %ΔE.
Answer: Applied to balance sheet: %ΔE=−A×(DA−kDL)ΔR1+R.


◉ DADA.
Answer: Duration of assets.

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