Use the following balance sheet accounts to answer question:

Question:

- What changes in portfolio composition would you recommend to management if you are expecting interest rates to decrease? Assume that management is using an aggressive strategy.

a) Increase RSA and/or Decrease RSL

b) Increase RSL and/ or Decrease RSA

c ) Increase interest rates

d) No change at all

e ) None of the above

-What is the banks $GAP, Net Interest Income and Net Interest Margin? How much will net interest income change if interest rates increase by 30 basis points?

Assets Liabilities and Equity Floating rate loans Federal funds sold Fixed rate loans Total Assets $300 (11%) 150 (12%) 770 (10%) $1,220 Variable rate deposits $820 (6%) Fixed rate deposits 300 (9%) Equity 100 Total Liabilities and Equity $1,220