Which of the following statements is true?
A)A negative gap indicates that a rise in interest rates would lower the bank's net interest income.
B)A positive gap indicates that a rise in interest rates would lower the bank's net interest income.
C)A negative gap indicates that a rise in interest rates would increase the bank's net interest income.
D)None of the listed options are correct.

Question

Quizplus · Accepted Answer

A negative gap means that the bank has more liabilities than assets that are impacted by changes in interest rates. This means that if interest rates rise, the bank's cost of funds will increase more than its interest income, resulting in a decrease in net interest income.

Which of the Following Statements Is True