8. Study the following Balance Sheet. Based on its structure, what is the potential liability to the bank if interest rates decrease 1% during a 1-year period? Bank “A” Balance Sheet (in $1,000,000s) Assets Liabilities Cash & Cash Equivalents $ 5.00 Demand Deposits $ 508.00 Loans: Fixed-Rate Passbook Accounts $ 978.00 <6-month $ 23.00 3-mo comm'l paper 2.70 6-12 months 22.00 time deposits: 1-year 134.00 2,335.50 2-years 142.00 2-year 1,226.80>15-years $ 5,567.00 3-5 year $ 928.40 Loans: Variable-Rate 30-bonds $ 1,705.60 10-year variable $ 345.00 Equity $ 920.00 30-year variable $ 2,367.00 OBS Liabilities TOTAL: $ 8,605.00 $ 8,605.00

a. No risk to the Bank, it has no repricing gap.

b. No risk to the Bank, it has a negative repricing gap.

c. The bank is exposed to about -$30 million for every 1% increase in interest rates, so the bank has negative repricing gap.

d. The bank is exposed to $30 million for every 1% in interest rates, so the bank has positive repricing gap.

e. None of the above.