Question

rate-sensitive bank assets liabilities risk sensitive: risk sensitive: variable-rate loans $5 variable-rate cds $30 short-term loans 10 money market deposit accounts 20 short-term securities 15 checkable deposits 10 reserves 10 savings deposits 10 long-term loans 30 long-term cds 20 long-term securities 30 equity capital 10

Answer 1

The bank will make $400,000 less in profit.

The increase in bank profit will be $0.6 million, or 600,000.

How is rate sensitive defined?

Bank assets that are rate-sensitive include bonds, loans, and leases, which are primarily affected by changes in interest rates. As interest rates change, these assets are either repriced or revalued.

1. $20 million
2. $4,00,000
3. $6,00,000

Rate-sensitive assets = Variable-rate loans + Short-term loans + Short-term securities = $5 + $10 + $15 = $30

Rate-sensitive liabilities = Variable-rate CDs + Money market deposit accounts = $30 + $20 = $50

Gap = the amount of rate-sensitive assets - the amount of rate-sensitive liabilities = $30 - $50 = -$20

The bank will make $400,000 less in profit.

The increase in bank profit will be $0.6 million, or 600,000.

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