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      Question

      Which of the following metric of the bank is dependent

      on the movements of the interest rate?
      A NIM Correct Answer Incorrect Answer
      B NPA Correct Answer Incorrect Answer
      C PCR Correct Answer Incorrect Answer
      D Net Profit Correct Answer Incorrect Answer
      E CASA Correct Answer Incorrect Answer

      Solution

      The management of Interest Rate Risk should be one of the critical components of market risk management in banks. The Net Interest Income (NII) or Net Interest Margin (NIM) of banks is dependent on the movements of interest rates. Any mismatches in the cash flows (fixed assets or liabilities) or repricing dates (floating assets or liabilities), expose banks’ NII or NIM to variations. The earning of assets and the cost of liabilities are now closely related to market interest rate volatility

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