Suppose Bank A has $40 million in rate-sensitive assets, $70 million in fixed rate assets, $70 million
Question:
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.
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba