a)If interest rates decreased dramatically, what impact might this have on the banks funding GAP and DGAP position? In particular, which assets or liabilities, if any, would be affected and how would they be affected?

b)How would you answer differ if rates increased dramatically

DGAP is Positive and GAP is mostly asset sensitive

SMU-MBA Bank Assets $ ValueRate ECR Duration Cash 6 month base loans 3 year fixed rate loans Total Assets 900 1,150 7.00% 100% 2,300 8.50% 4,350 95% Liabilities Demand deposits MMDA 1 year large CD's Total Liabilities Equity Total Liab. and Equity 2,000 1,150 2.50% 25% 45% 850 4.50% 4,000 350 4,350