Does the slope of the interest yield curve typically have a substantial impact on a bank's net interest margin?
A) No, it doesn't, since the slope of the yield cure is unrelated to the spread between short-term and long-term interest rates.
B) No, it doesn't. There isn't any link at all between the slope of the interest yield curve and a bank's net interest margin.
C) Yes it does. In banking, long-term rates usually apply to bank deposits and money market borrowings whereas short-term interest rates are attached to loans and securities.
D) Yes it does. Long-term rates usually apply to a bank's assets (loans, securities, etc.) and the short term interest rates are generally attached to liabilities (deposits, money market borrowings, etc.).

Question

Quizplus · Accepted Answer

The slope of the interest yield curve has a substantial impact on a bank's net interest margin because long-term rates usually apply to a bank's assets (loans, securities, etc.) and the short term interest rates are generally attached to liabilities (deposits, money market borrowings, etc.). Therefore, the wider the spread between short-term and long-term interest rates (i.e. a steeper yield curve), the more a bank can earn on its assets and the more it can pay on its liabilities, leading to higher net interest margins. Conversely, a flatter yield curve can negatively impact a bank's net interest margin.

Does the Slope of the Interest Yield Curve Typically Have