If rate-sensitive assets equal $600 million and rate-sensitive liabilities equals $800 million, what is the expected change in net interest income if rates increase by 1%?
A) Net interest income will increase by $2 million.
B) Net interest income will fall by $2 million.
C) Net interest income will increase by $20 million.
D) Net interest income will fall by $20 million.
E) Net interest income will be unchanged.

Question

Quizplus · Accepted Answer

Net interest income will fall by $2 million because the increase in interest expense on the higher amount of rate-sensitive liabilities ($800 million) compared to the increase in interest income on the rate-sensitive assets ($600 million) will result in a net decrease in interest income when rates rise by 1%. The difference in rate-sensitive positions is $200 million, and 1% of $200 million is $2 million.

If Rate-Sensitive Assets Equal $600 Million and Rate-Sensitive Liabilities Equals