If a bank has a negative GAP, an increase in interest rates will cause interest income to __________, interest expense to__________, and net interest income to __________.
A) increase, increase, increase
B) increase, decrease, increase
C) increase, increase, decrease
D) decrease, decrease, decrease
E) decrease, increase, increase

Question

Quizplus · Accepted Answer

A negative GAP means that the bank has more rate-sensitive liabilities than rate-sensitive assets. When interest rates increase, the interest expense on liabilities will increase more than the interest income on assets, leading to a decrease in net interest income.

If a Bank Has a Negative GAP, an Increase in Interest