Question

Will the earnings sensitivity change in the long run? What kind of assets or liabilities could explain the positive repricing gap in the long-run window? Give two examples for assets and two for liabilities.

Answer 1

Answer:

Yes, earning sensitivity will change in the long run

Explanation:

Earnings Sensitivity Analysis helps in determining the impact of an independent variable over a particular dependent variable based on various assumptions. This comparison on its own, measures changes in the long run.

This technique helps managers in determining the change in net interest income in correspondence to wide range of interest rates.

The repricing gap in the long term window will measure of the difference between the dollar value of assets that will reprice and the dollar value of liabilities that will reprice within a specific time period.

A possible implication is potential to receive a new interest rate.

The assets that could explain the positive reprising gap is Accounts payable and investments.

Two examples of Liabilities are: Short term loans and accounts payable.

Answer 2

Answer:

Will the earnings sensitivity change in the long run?

Yes the earning sensitivity will change in the long run.

What kind of assets or liabilities could explain the positive repricing gap in the long-run window?

The type of assets o liabilities that could explain positive repricing gap in the long-run window are the values of securities tied to interest rates.

Two examples of assets and two for liabilities

Assets & liabilities are  bonds and market securities.

Explanation:

Repricing risk reflects the possibility that assets and liabilities will be repriced at different times or amounts and affect an institution’s earnings, capital, or general financial condition in a negative way. For example, the management may use non-maturity deposits to fund long-term, fixed-rate securities. If deposit rates increase, the higher funding costs would likely reduce net yields on fixed-rate securities.