The bank has a negative maturity gap.Is the bank exposed to interest rate increases or decreases and why?
A)Interest rate increases because the value of its assets will rise more than its liabilities.
B)Interest rate increases because the value of its assets will fall more than its liabilities.
C)Interest rate decreases because the value of its assets will rise less than its liabilities.
D)Interest rate decreases because the value of its assets will fall more than its liabilities.

Question

Quizplus · Accepted Answer

A bank with a negative maturity gap has more liabilities than assets that are due in the short term. If interest rates decrease, the value of its liabilities will decrease more than the value of its assets, resulting in a gain. Conversely, if interest rates increase, the value of its assets will increase less than the value of its liabilities, resulting in a loss. Therefore, the bank is exposed to interest rate decreases.

The Bank Has a Negative Maturity Gap