A gap ratio of less than one suggests that
A) rate-sensitive assets exceed rate-sensitive liabilities.
B) an increase in interest rates would increase the bank's net interest margin.
C) rate-sensitive liabilities exceed rate-sensitive assets.
D) a decrease in interest rates would decrease the bank's net interest margin.
E) B and D

Question

Quizplus · Accepted Answer

A gap ratio of less than one suggests that rate-sensitive liabilities exceed rate-sensitive assets, making the bank more vulnerable to decreases in interest rates. This is because the bank's interest expenses will rise faster than its interest income, resulting in a decline in net interest margin. Therefore, options A and B are incorrect, and options D and E are also incorrect as they suggest that a decrease in interest rates would increase the bank's net interest margin.

A Gap Ratio of Less Than One Suggests That