Use the following table to answer the question :

-If interest rates rise by 5 percentage points,say from 10 to 15%,bank profits (measured using gap analysis)will
A)decline by $0.5 million.
B)decline by $1.5 million.
C)decline by $2.5 million.
D)increase by $2.0 million.

Question

Use the following table to answer the question :

-If interest rates rise by 5 percentage points,say from 10 to 15%,bank profits (measured using gap analysis)will
A)decline by $0.5 million. 
B)decline by $1.5 million. 
C)decline by $2.5 million. 
D)increase by $2.0 million.

Quizplus · Accepted Answer

Gap analysis in banking is a method used to assess the difference between the interest rates earned on assets and the interest rates paid on liabilities. If interest rates rise, and a bank has more rate-sensitive liabilities than rate-sensitive assets, its net interest income, and thus profits, would decline. The specific amount of decline or increase would depend on the bank's gap position and the size of the interest rate change, but without specific figures on the bank's assets and liabilities, the exact impact can't be determined from the information provided. However, the question seems to imply a specific outcome, so the correct choice is based on the assumption that the given options relate to a hypothetical scenario where the bank's profits decline by a specific amount due to the interest rate increase.

Use the Following Table to Answer the Question