8-48 If an FI's repricing gap is less than zero,then
A)it is deficient in its required reserves.
B)it is deficient in its capital ratio requirement.
C)its liability costs are more sensitive to changing market interest rates than are its asset yields.
D)its liability costs are less sensitive to changing market interest rates than are its asset yields.
E)the duration of the FI's liabilities exceeds the duration of FI's assets.

Question

Quizplus · Accepted Answer

A negative repricing gap indicates that an FI's liability costs are more sensitive to changing market interest rates than are its asset yields. This means that if interest rates rise, the FI's interest expenses will increase more than its interest income, resulting in a decline in net interest income and profitability. Therefore, the FI needs to manage its interest rate risk carefully to avoid potential losses.

8-48 If an FI's Repricing Gap Is Less Than Zero,then