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business model ofthe financial

institution-ANZ bank.

b. Analyse the profitability, total assets, liabilities, off balance sheet items as well as the book and market

value of capital ofthe financial institution overthe past five years.

c. Explain at least five risks to which the financial institution

is exposed.

Problem 2 [10 marks]:

a. What is the bank’s duration gap?

b. Use your answer in a.) to calculate the expected absolute

change in the value of (i) the assets, (ii) the liabilities and (iii) the equity ofthe bank for a predicted decrease ofo.75% in interes
rates.

c. Give four distinct reasons why the realised equity value change may be different from your answer in b.) given an actual
decrease in the Reserve Bank ofAustralia cash target rate ofo.75%