Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose Bank A has $40 million in rate-sensitive assets, $70 million in fixed rate assets, $70 million in rate sensitive liabilities, and $40 million in

Suppose Bank A has $40 million in rate-sensitive assets, $70 million in fixed rate assets, $70 million in rate sensitive liabilities, and $40 million in fixed rate liabilities and equity capital. (8 points)

a. What is the value of the bank’s GAP?

b. Calculate the change in Bank A’s net interest income as a result of a decrease in market interest rates of 3 percentage points, everything else held constant.

c. Calculate the change in Bank A’s net interest income as a result of an increase in market interest rates of 2 percentage points, , everything else held constant

d. If you had believed that rates were going to rise by 2 percentage points (before it happened), explain how (if at all) you could have altered Bank A’s balance sheet and changed its interest rate risk exposure to improve its subsequent profit performance.

Step by Step Solution

3.43 Rating (166 Votes )

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Microeconomics An Intuitive Approach with Calculus

Authors: Thomas Nechyba

1st edition

538453257, 978-0538453257

More Books

Students also viewed these Finance questions

Question

What is the value of a percentage profit-and-loss statement?

Answered: 1 week ago