uppose that deposits with the FED, U$.$S$.$ treasuries with floating rate, credit card loans and

adjustable mortgage loans are interest rate$-$sensitive assets. The liabilities that are sensitive to

interest rates are the money market accounts, savings accounts and the CDs with floating rates.

All other assets or liabilities are not sensitive to interest rate fluctuations. For the simplicity of

the exercise, suppose that all interest$-$sensitive assets and liabilities have the same

reference$/$benchmark rate, like the FED Funds Rate for example $($part of the interest rate on the

assets or liabilities that can fluctuate$)$

$($a$)$ You$$re the bank$$s manager and you are assessing the sensitivity of the bank$$s cash flows $($in

terms of net interest income$)$ to interest rate fluctuations. What is the best analysis that you can

perform to understand better how the net interest income can be affected by interest rate

changes?

$($b$)$ The country is experiencing high levels of employment, economic growth and inflation. Your

team is expecting that the FED will increase the Funds Rate next meeting by $2\%(200$ bps$).$

Given the nature of your gap between sensitive assets and liabilities, what sort of impact would