Question
1- Suppose a bank faces a gap of -20 between its interest-sensitive assets and its interest-sensitive liabilities. What would happen to bank profits if interest
1- Suppose a bank faces a gap of -20 between its interest-sensitive assets and its interest-sensitive liabilities. What would happen to bank profits if interest rates were to fall by 1 percentage point? You should report your answer in terms of the change in profit per $100 in assets. PLEASE EXPLAIN THE ANSWER WITH DETAILS
2. Statistically, teenage drivers are more likely to have an automobile accident than adult drivers. As a result, insurance companies charge higher insurance premiums for teenage drivers. Suppose one insurance company decided to charge teenagers and adults the same premium based on the average risk of an accident among both groups. Using your knowledge of the problems associated with asymmetric information, explain whether you think this insurance company will be profitable. PLEASE EXPLAIN THE ANSWER WITH DETAILS.
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