A bank has a positive gap and estimates that the spread between risk-sensitive assets and risk-sensitive liabilities will move directly with interest rates. If interest rates fall the bank's overall NII will

Question

Quizplus · Accepted Answer

A positive gap means that the bank has more rate-sensitive assets than liabilities. If interest rates fall, the income from these assets will decrease more than the decrease in expenses from liabilities, leading to a fall in Net Interest Income (NII).

A Bank Has a Positive Gap and Estimates That the Spread