If a bank's liabilities are more sensitive to interest rate movements than are its assets,then
A)an increase in interest rates will reduce bank profits.
B)a decrease in interest rates will reduce bank profits.
C)interest rates changes will not impact bank profits.
D)an increase in interest rates will increase bank profits.

Question

Quizplus · Accepted Answer

When a bank's liabilities are more sensitive to interest rate movements than its assets, an increase in interest rates will lead to higher interest expenses on liabilities compared to the income from assets, thus reducing bank profits.

If a Bank's Liabilities Are More Sensitive to Interest Rate