If a bank has $50 million in rate-sensitive assets and $20 million in rate-sensitive liabilities then
A)an increase in interest rates will reduce bank profits.
B)a decrease in interest rates will reduce bank profits.
C)interest rate changes will not impact bank profits.
D)a decrease in interest rates will increase bank profits.

Question

Quizplus · Accepted Answer

When a bank has more rate-sensitive assets than liabilities, an increase in interest rates will generally increase its profits because it earns more on its assets. Conversely, a decrease in interest rates will reduce its profits because the return on its assets decreases more than the cost of its liabilities.

If a Bank Has $50 Million in Rate-Sensitive Assets and $20