If interest rates on both assets and liabilities fall by 2 percent in the next 90 days,what should happen to this bank's net interest margin?
A)It should rise by 0.5 percent.
B)It should fall by 0.5 percent.
C)It should stay the same.
D)It should rise by 2 percent.
E)It should fall by 2 percent.

Question

Quizplus · Accepted Answer

The net interest margin (NIM) is the difference between the interest income generated by banks or financial institutions and the amount of interest paid out to their lenders (for example, deposits), relative to the amount of their (interest-earning) assets. If interest rates on both assets and liabilities fall by the same percentage, the impact on NIM would depend on the existing interest rate spread and the composition of assets and liabilities. However, without specific details on the spread and composition, a general outcome can't be accurately predicted. The choice suggesting a rise by 0.5 percent assumes a specific condition that might not apply universally, indicating a misunderstanding or a hypothetical scenario not fully explained.

If Interest Rates on Both Assets and Liabilities Fall by 2