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2. Bank of RGV currently has the following interest-sensitive assets and liabilities on its balance sheet with the interest-rate sensitivity weights noted. Interest-Sensitive Assets Federal fund loans Security holdings Loans and leases Interest-Sensitive Liabilities Interest-bearing deposits Money-market borrowings S Amount $75.00 $90.00 $450.00 S Amount $325.00 $80.00 Rate Sensitivity Index 1.00 1.20 1.4S Rate Sensitivity Index 0.75 0.95 a) What is the bank's current interest-sensitive gap? Adjusting for these various interest rate sensi- tivity weights, what is the bank's wxighted intrest-sensitive gap? a. $625 & $340 b. $200 &$500 c. $450 & $312 d. $500 &$350 e. $210 & $516 Suppose the federal funds interest rate change by 200 basis points (2%), how will the bank's net interest income be affected given its current original and weighted balance sheet makeup? b) a. increases by +4.2 and +10 b decreases by-4.5 and-8 c. increases by +2.5 and decreases by -5 d. decreases by -2 and increases by+4 e. None is correct c) After you determine either the interest-sensitive gap is positive or negative, you should be able to Considering the direction of interest sensi- determine the risk and possible management response tive gap, what would be your strategy to minimize the risk? a. Extend asset maturity or shorten liability maturity b. Extend liability maturity or shorten asset maturity c. Do nothing market and let it recover by itself d. Decrease overall asset books e. Decrease overall liability books