A bank has assets of $5 million that mature in 3 years and liabilities of $5 million that mature in 2 years where interest rates (fixed rate) are 7% on assets and 6% on liabilities. Suppose interest rates decrease in 2 years when the liabilities mature. Which of the following is most accurate (assuming a 3 year time horizon)?

• A. The bank benefits because it is cheaper to borrow now and assets remain at the same rate
• B. The bank suffers because it must reinvest assets at a lower rate while liabilities remain at the same rate
• C. There is no impact because interest rates move for both assets and liabilities