Question
. Consider the following asset and liability positions of the two banks: County Bank State Bank Asset: 1-year commercial loan that Asset: 3-year commercial loan
. Consider the following asset and liability positions of the two banks:
County Bank State Bank
Asset: 1-year commercial loan that Asset: 3-year commercial loan priced at
yields a fixed 6% [$5 million] LIBOR + 3% [$5 million]
Liability: 6-month CD [$5 million] Liability: 2-year CD [$5 million]
a. Calculate each banks 6-month GAP and 1-year GAP.
b. If interest rates fall, over the next 6 months, what will the expected impact be on each banks
net interest income? Explain how both interest income and interest expense will change.
c. If interest rates rise, in general, over the next 6 months, what will the expected impact be
on each banks net interest income? Explain how both interest income and interest expense
will change
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