Durango Bank has $2 million in rate-sensitive liabilities and $3 million in rate sensitive assets. Durango's gap is ____, and Durango is probably more concerned about a(n) ____ in interest rates.

Question

Quizplus · Accepted Answer

Durango's gap is calculated as Gap = Rate-sensitive assets - Rate-sensitive liabilities = $3 million - $2 million = $1 million. A positive gap indicates that rate-sensitive assets exceed rate-sensitive liabilities and Durango would benefit from an increase in interest rates while a negative gap indicates the opposite.

Durango's gap is positive, indicating that Durango is more concerned about a decrease in interest rates, as this would cause the value of its rate-sensitive liabilities to increase more than the value of its rate-sensitive assets. Therefore, choice D is the best answer.

Durango Bank Has $2 Million in Rate-Sensitive Liabilities and $3