During a period of rising interest rates, a bank's net interest margin will likely decline if it has a large amount of
A)rate-sensitive assets and no rate-sensitive liabilities.
B)rate-sensitive liabilities and no rate-sensitive assets.
C)loans to technology firms.
D)real estate loans.

Question

Quizplus · Accepted Answer

A bank's net interest margin is likely to decline during a period of rising interest rates if it has a large amount of rate-sensitive liabilities and no rate-sensitive assets. This is because the cost of the liabilities (e.g., interest paid on deposits) will increase faster than the income from assets, reducing the margin.

During a Period of Rising Interest Rates, a Bank's Net