If interest rates increase 75 basis points for an FI that has a gap of -$15 million, the expected change in net interest income is
A)-$112,500.
B)+$112,500.
C)+$1,125,0000.
D)-$1,125,0000.
E)-$150,000.

Question

Quizplus · Accepted Answer

The expected change in net interest income for an FI with a negative gap is calculated by multiplying the change in interest rates by the gap. Here, a 75 basis point increase (0.75%) and a gap of -$15 million results in a change of -0.0075 * -$15,000,000 = +$112,500. A negative gap means the FI will benefit from rising interest rates, hence the positive change in net interest income.

If Interest Rates Increase 75 Basis Points for an FI