Measuring the sensitivity of bank profits to changes in interest rates by multiplying the gap times the change in the interest rate is called
A)basic duration analysis.
B)basic gap analysis.
C)interest-exposure analysis.
D)gap-exposure analysis.

Question

Quizplus · Accepted Answer

The given scenario refers to basic gap analysis which measures the sensitivity of bank profits to changes in interest rates by multiplying the gap (the difference between interest earning assets and interest-bearing liabilities) times the change in the interest rate. Option A, basic duration analysis, measures the sensitivity of the firm's bond portfolio to changes in interest rates. Option C, interest-exposure analysis, is not a commonly used term in finance. Option D, gap-exposure analysis, is not a recognized term in finance.

Measuring the Sensitivity of Bank Profits to Changes in Interest