What are examples of interest sensitive assets?

What Are Interest-Sensitive Assets? Interest sensitive assets are financial products whose features and characteristics or their secondary market price are vulnerable to changes in interest rates. The adjustable-rate mortgage is an example. Banks and their customers both are affected by interest-sensitive assets.

What are rate sensitive assets and liabilities?

Rate sensitive assets are bank assets, mainly bonds, loans and leases, and the value of these assets is sensitive to changes in interest rates; these assets are either repriced or revalued as interest rates change.

What is RSA and RSL?

RSA. See rate-sensitive assets. RSL. See rate-sensitive liabilities.

What is the difference between rate sensitive assets and rate sensitive liabilities?

A positive gap, or one greater than one, is the opposite, where a bank’s interest rate sensitive assets exceed its interest rate sensitive liabilities. Each measures the difference between rates on assets and liabilities and is an indicator of interest rate risk.

What is interest sensitivity statement?

Interest rate sensitivity is a measure of how much the price of a fixed-income asset will fluctuate as a result of changes in the interest rate environment. Securities that are more sensitive have greater price fluctuations than those with less sensitivity.

What are rate sensitive liabilities?

Rate sensitive liabilities are bank liabilities, mainly interest-bearing deposits and other liabilities, and the value of these liabilities is sensitive to changes in interest rates; these liabilities are either repriced or revalued as interest rates change.

What is RSA in banking?

A Retirement Savings Account (RSA) is a type of retirement plan account that’s similar to a savings account that banks and other financial organisations offer. RSA is designed to enable you to save for retirement in a flexible manner.

What are sensitive liabilities?

Interest sensitive liabilities are short-term deposits with variable interest rates that a bank holds for customers. Because interest-sensitive liabilities are based on variable rates, banks have to manage the corresponding interest rate risk due to changes in rates over time.

How do you calculate interest and sensitivity?

One widely used measure to determine the interest rate sensitivity is the effective duration. For example, assume a bond mutual fund holds 100 bonds with an average duration of nine years and an average effective duration of 11 years.

Which bond is more sensitive to an interest rate change of?

Long term bonds
Long term bonds are most sensitive to interest rate changes.

What is the most common type of interest rate swap?

The most commonly traded and most liquid interest rate swaps are known as “vanilla” swaps, which exchange fixed-rate payments for floating-rate payments based on LIBOR (London Inter-Bank Offered Rate), which is the interest rate high-credit quality banks charge one another for short-term financing.

How do you calculate interest rate sensitivity?

What are some examples of interest sensitive liabilities?

Because interest sensitive liabilities are based on variable rates, banks have to manage the corresponding interest rate risk due to changes in rates over time. Examples of interest sensitive liabilities are money market certificates, savings accounts, and Super NOW accounts.

What does it mean to have a liability sensitive balance sheet?

Liability sensitivity refers to a balance sheet structure where there is an asset liability mismatch and liabilities re-price or reset faster than assets. This means that interest rates on assets are locked down for longer periods of time when compared to liabilities. A liability sensitive balance sheet – default ALM scenario

How is asset sensitivity related to liability mismatch?

Asset liability mismatch. Asset sensitivity. Asset sensitivity refers to a balance sheet structure where assets re-price or reset faster than liabilities. This means that interest rates on liabilities are locked down for longer period of times when compared to assets.

When do rate sensitive assets exceed rate sensitive liabilities?

Rate Sensitive Assets (RSA) = Rate Sensitive Liabilities (RSL) The most familiar example of re-pricing assets is loans that are about to mature or are coming up for renewal. When rate sensitive assets exceed rate sensitive liabilities?