medium · FRM Part 2 Liquidity & Treasury Risk
A bank behaviorally models a 'core' segment of its demand deposits as having a 7-year duration for EVE purposes.
If rates rise by 200 basis points, how does this assumption affect the measured change in EVE compared to an assumption of a 1-year duration?
- It has no impact on EVE, only on NII.
- It increases the bank's regulatory capital requirement automatically.
- It makes the EVE look more sensitive to rate increases.
- It makes the EVE look less sensitive to rate increases (flatter).
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