If a bank has a negative dollar gap and interest rates are expected to increase in the near future, the net interest margin of the bank will:
A) increase
B) decrease
C) not change
D) it depends on the duration gap

Question

Quizplus · Accepted Answer

A negative dollar gap means that the bank has more rate-sensitive liabilities than rate-sensitive assets. If interest rates increase, the cost of those liabilities will increase faster than the returns on assets, leading to a decrease in the net interest margin.

If a Bank Has a Negative Dollar Gap and Interest