A bank is asset-sensitive if its:
A)loans and securities are affected by changes in interest rates.
B)interest-sensitive assets exceed its interest-sensitive liabilities.
C)interest-sensitive liabilities exceed its interest-sensitive assets.
D)deposits and borrowings are affected by changes in interest rates.
E)None of the options is correct.

Question

Quizplus · Accepted Answer

A bank is considered asset-sensitive when its interest-sensitive assets (such as loans and securities whose interest income varies with market rates) exceed its interest-sensitive liabilities (like deposits and borrowings whose interest expense varies with market rates). This means the bank stands to benefit from rising interest rates because it will earn more on its assets relative to what it pays out on its liabilities.

A Bank Is Asset-Sensitive If Its