If a bank expects interest rates to increase in the coming year, it should:
A) increase its GAP.
B) issue fewer variable rate loans.
C) issue more 3-month CDs.
D) issue more fixed rate loans.
E) become more liability sensitive.

Question

Quizplus · Accepted Answer

By increasing its GAP (the difference between rate-sensitive assets and rate-sensitive liabilities), the bank can benefit from rising interest rates, as it will have more assets that can reprice at higher rates than liabilities.

If a Bank Expects Interest Rates to Increase in the Coming