8-47 What is spread effect?
A)Periodic cash flow of interest and principal amortization payments on long-term assets that can be reinvested at market rates.
B)The effect that a change in the spread between rates on RSAs and RSLs has on net interest income as interest rates change.
C)The effect of mismatch of asset and liabilities within a maturity bucket.
D)The premium paid to compensate for the future uncertainty in a security's value.
E)The value of an FI to its owners.

Question

Quizplus · Accepted Answer

The spread effect refers to the impact of a change in the spread between rates on RSAs and RSLs on the net interest income of an FI as interest rates fluctuate. It is important for lenders to manage their spreads effectively to ensure profitability.

8-47 What Is Spread Effect