If an FI's repricing gap is less than zero, then
A)it is deficient in its required reserves.
B)it is deficient in its capital ratio requirement.
C)its liability costs are more sensitive to changing market interest rates than are its asset yields.
D)its liability costs are less sensitive to changing market interest rates than are its asset yields.
E)the duration of the FI's liabilities exceeds the duration of FI's assets.

Question

Quizplus · Accepted Answer

A negative repricing gap indicates that an FI's liability costs are more sensitive to changing market interest rates than its asset yields. This means that if interest rates were to increase, the FI's costs would increase faster than the revenue generated from assets, putting pressure on its profitability. It does not necessarily imply deficiencies in reserves or capital ratios or a mismatch in durations.

If an FI's Repricing Gap Is Less Than Zero, Then