-If interest rates rise by 5 percentage points, say, from 10 to 15 percent, bank profits (measured using basic gap analysis) will ________.

Question

Quizplus · Accepted Answer

Basic gap analysis focuses on the difference between the dollar amount of a bank's rate-sensitive assets and the dollar amount of its rate-sensitive liabilities. If interest rates rise, and a bank has more rate-sensitive liabilities than assets, its net interest income, and thus profits, will decline. The specific amount of decline (e.g., $1.5 million) depends on the size of the gap and the magnitude of the interest rate change, but without specific figures on the bank's assets and liabilities, the exact calculation cannot be provided. However, the correct choice is the one that indicates a decline in profits, which aligns with the principles of gap analysis when liabilities are more rate-sensitive than assets.

-If Interest Rates Rise by 5 Percentage Points, Say, from 10