If a bank's interest-sensitive assets and liabilities are equal,then its interest revenues from assets and funding costs from liabilities will change in the same proportion relative to changes in market interest rates.

Question

Quizplus · Accepted Answer

When a bank's interest-sensitive assets and liabilities are equal, this is referred to as balance or “neutral” interest rate risk. In this scenario, if market interest rates increase, the bank's interest revenues from its assets will also increase, but its funding costs from liabilities will increase by a similar proportion, resulting in no net change in the bank's net income. Similarly, if market interest rates decrease, the interest revenues from assets and funding costs from liabilities will both decrease by a similar proportion. Therefore, the bank's net income will remain unchanged.

If a Bank's Interest-Sensitive Assets and Liabilities Are Equal,then Its