A bank's assets tend to be long-term while its liabilities are short-term. Therefore, when interest rates rise, the value of the bank's assets:

Question

Quizplus · Accepted Answer

When interest rates rise, the value of a bank's long-term assets decreases more than the value of its short-term liabilities. This is because the bank's assets are fixed-rate while its liabilities are floating-rate. As a result, the bank's net interest margin decreases, leading to a decrease in the value of its assets. Therefore, the correct answer is B, the value of its assets will decrease by more than the value of its liabilities.

A Bank's Assets Tend to Be Long-Term While Its Liabilities