What is spread effect?
A)Periodic cash flow of interest and principal amortization payments on long-term assets that can be reinvested at market rates.
B)The effect that a change in the spread between rates on RSAs and RSLs has on net interest income as interest rates change.
C)The effect of mismatch of asset and liabilities within a maturity bucket.
D)The premium paid to compensate for the future uncertainty in a security's value.

Question

Quizplus · Accepted Answer

Spread effect refers to the impact on net interest income resulting from a change in the spread between rates on interest-earning assets (IEAs) and interest-bearing liabilities (IBLs). The spread is the difference between IEA and IBL rates. As interest rates change, the spread changes, and this affects net interest income.

What Is Spread Effect