Which of the following statements is true?
A)An FI with a positive repricing gap expects interest rates to remain stable.
B)An FI with a positive repricing gap expects interest rates to rise.
C)An FI with a positive repricing gap expects interest rates to remain fall.
D)An FI with a positive repricing gap has not particular expectations regarding interest rate movements.

Question

Quizplus · Accepted Answer

An FI with a positive repricing gap expects interest rates to rise because they will be able to earn more interest income on their assets than they will have to pay on their liabilities. This is because the rate on their assets is generally reset sooner than the rate on their liabilities. Therefore, if interest rates rise, they will be able to reset the rate on their assets at the higher rate before they have to pay the higher rate on their liabilities, resulting in an increase in net interest income.

Which of the Following Statements Is True