Question: Consider a bank with the following data: Interest sensitive assets = $250 million Interest sensitive liabilities = $300 million Calculate the IS-GAP, Relative IS-GAP, and

  1. Consider a bank with the following data:
  • Interest sensitive assets = $250 million
  • Interest sensitive liabilities = $300 million

  1. Calculate the IS-GAP, Relative IS-GAP, and IS Ratio of the firm
  2. Comment on whether the bank has a positive or negative gap and is asset or liability sensitive. Why?
  3. What happens to the net interest margin (NIM) of this bank when interest rates increase?
  4. If the ALM team intentionally takes this position, what do you think their expectations are concerning the market rates? Explain explicitly.

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