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

Question

Quizplus · Accepted Answer

A positive gap means that the bank's interest-sensitive liabilities exceed its interest-sensitive assets. This means that a rise in interest rates would increase the bank's net interest income, as the bank would be earning more interest on its liabilities than it would be paying on its assets. Conversely, a negative gap would mean that a rise in interest rates would decrease the bank's net interest income, as the bank would be paying more interest on its liabilities than it would be earning on its assets. Option C is incorrect, as a positive gap would mean that a fall in interest rates would decrease the bank's net interest income, since the bank would be earning less interest on its liabilities than it would be paying on its assets. Option A is incorrect, as a negative gap would mean that a rise in interest rates would decrease the bank's net interest income.

Which of the Following Statements Is True