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When is an asset or liability termed as rate sensitive?

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Question added by Vinod Jetley , Assistant General Manager , State Bank of India
Date Posted: 2015/01/04
Vinod Jetley
by Vinod Jetley , Assistant General Manager , State Bank of India

(a) Within the time interval under consideration, there is a cash flow,

 (b) The interest rate resets/reprices contractually during the interval

(c) RBI changes interest rates if rates are administered and,

 (d) It is contractually pre-payable or withdrawal before the stated maturities.

Elke Woofter
by Elke Woofter , Project Assistant , American Technical Associates

If a portfolio has assets repricing earlier than liabilities, it is said to be asset sensitive. This is because near term changes in earnings are going to be driven by interest rate resets on those assets.

Similarly, if liabilities reprice earlier, earnings are more exposed to interest rate resets on those liability, and the portfolio is called liability sensitive.by interest rate resets on those assets. 

Deleted user
by Deleted user

Great answer

 

Sir

Saiful Islam Hiron
by Saiful Islam Hiron , Site HR Manager , Handicap International

Agree with Vinod.............

Snezana Brankovic
by Snezana Brankovic , • Senior Consultant in Marketing Department , „Stankom” Business System

The difference between the aggregate amount of assets and liabilities that are repricing at various time frames is called the interest rate sensitivity “gap.

Nadeem Asghar
by Nadeem Asghar , Supply Chain Consultant/Trainer , Independent Practitioner

Perfect answer, Mr. Jetley.

Muhammad Usman Tariq
by Muhammad Usman Tariq , Visiting Faculty , National University of Science and Technology

Any type of short-term deposit held by a bank that pays a variable rate of interest to the customer. Interest sensitive liabilities make up a significant amount of the assets of most banks. These liabilities include money market certificates, savings accounts and the Super NOW account.

Wolf Klaas Kinsbergen
by Wolf Klaas Kinsbergen , Managing Director, Designer , ingenieursbureau KB International NV

Thank you for the invitation, agree (off course) with your answer.

RAJ DAHIYA
by RAJ DAHIYA , Project Manager - Energy Optimization , Siemens

Endorse your answer, Mr. Jetley.

Asim Azaldeen Abdalrahman Mhammed
by Asim Azaldeen Abdalrahman Mhammed , Property Manager , TAAM PROPERTY

Thanx Mr vinod for your nice answer

Ahmed Mohamed Ayesh Sarkhi
by Ahmed Mohamed Ayesh Sarkhi , Shared Services Supervisor , Saudi Musheera Co. Ltd.

agree with u sir

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