Question

what is the difference between EAR(earning at risk) and EVE(economic value of equity)?

Answer 1

Difference between Earning at risk and Economiv value of equity

Earning at risk only assesses the amount that net income may change due to a change in interest rate over a specified period. The earnings at risk helps investors and risk professionals understand the impact that a change in interest rate can make on a company's financial position and cash flows. The earnings at risk analyzes potential increases and decreases in interest rates over a period of time with confidence. Companies engaged in international business face many risks like change in currency levels and fluctuating interest rates. Thus earning at risk is of very much use for such companies.

Economic value of equity measures the amount that a bank's total capital may change due to interest rates. A bank uses economic value of equity to manage its assets and liabilities. It is a long term economic measure used to assess the amount of interest rate risk exposure. The economic value of equity is a cash flow calculation that subtracts the present value of the expected cash flows on liabilities from the present value of all expected asset cash flows. A bank can use this measure to create models that indicate how interest rate changes will affect its total capital.