Suppose that for a financial institution, one-year rate sensitive assets (RSAs) are $240 million, and the one-year
Question:
Suppose that for a financial institution, one-year rate sensitive assets (RSAs) are $240 million, and the one-year rate sensitive liabilities (RSLs) are $185 million. Total assets of the financial institution are $400 million.
a) (20 points) Suppose that interest rates fall by 2% on RSAs and go up by 1.2% on RSLs. Calculate the change in spread and the effect of spread change on net interest income (NII). Leave four decimal places in the intermediate steps.
b) (10 points) Specify the effect of the following events from part (a) on the NII as favorable or unfavorable:
Declining rates on RSA
Increasing rates on RSL
Change in the spread
Clearly label your findings (e.g., profit margin = .....) and designate which part of the question you are answering (if there are multiple parts).
Accounting for Governmental and Nonprofit Entities
ISBN: 978-0078110931
16th Edition
Authors: Earl R. Wilson, Jacqueline L Reck, Susan C Kattelus