Economic Value of Equity EVA

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Definition: Economic Value of Equity EVA

Economic value of equity is the present value of all overall assets minus present value of all liabilities. It is generally used by banks as a tool of interest rate risk management.

EVE helps banks to estimate the impact of interest rate risk on net worth and equity of the bank because the value of assets and liabilities of a bank are directly linked with the interest rates. The values of the assets and liabilities are not the accounting or book values.

They are calculated by discounting the future cash flows on the basis of possible interest rates as a going concern.



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