Final answer:
As a risk analyst, to immunize a bank's income from interest rate fluctuations, one would use income gap and duration gap analyses, match asset and liability durations, and set up hedging strategies with derivatives. Adjusting investment risks over the course of a career is a continuous process, with higher risks often taken earlier in a career.
Step-by-step explanation:
To immunize a bank's income from changes in interest rates, a risk analyst might use a strategy known as an income gap analysis and duration gap analysis. These tools help assess the sensitivity of a bank's income and economic value to changes in interest rates. Immunization is about balancing the timing of cash inflows and outflows in response to interest rate movements.
The strategy involves matching the duration of assets and liabilities, so an increase or decrease in interest rates would affect both sides of the balance sheet equally, thus maintaining the net interest income relatively stable. When assets and liabilities are perfectly matched in terms of duration, any loss in the economic value of assets would be offset by a corresponding gain in the economic value of liabilities, and vice versa.
Additionally, establishing hedging strategies using financial derivatives such as interest rate swaps, futures, and options can also provide income protection. As the career of a risk analyst progresses, adjusting investment risk levels is advisable. In the early career stage, it may be appropriate to take more investment risks, while a more conservative approach is generally recommended as retirement nears.