If a bank has a negative GAP, a decrease 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, decrease, increase

Question

Quizplus · Accepted Answer

A negative GAP means that the bank's rate-sensitive liabilities exceed its rate-sensitive assets. When interest rates decrease, the interest income on assets decreases more than the interest expense on liabilities, leading to an increase in net interest income.

If a Bank Has a Negative GAP, a Decrease in Interest