medium · FRM Part 2 Liquidity & Treasury Risk
An institutional bank manages its interest rate risk in the banking book (IRRBB) using both Earnings at Risk (% Δ NII) and Economic Value of Equity (Δ EVE). The bank has a positive duration gap.
If the yield curve shifts upward in a parallel fashion, what are the most likely immediate impacts on these two metrics?
- EVE decreases; NII impact depends on the repricing gap sign
- Both EVE and NII must always decrease together in this scenario
- EVE decreases while NII must necessarily rise in the near term
- EVE increases while NII also rises given the positive gap
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