If a bank has a positive 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, increase, increase

Question

Quizplus · Accepted Answer

A positive GAP means that the bank has more rate-sensitive assets than liabilities. When interest rates decrease, the interest income from assets decreases more than the decrease in interest expense from liabilities, leading to a decrease in net interest income.

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