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If ABC bank has a negative interest sensitive gap and interest rates fall, this will tend...

If ABC bank has a negative interest sensitive gap and interest rates fall, this will tend to __________________ the bank’s net interest income. a. Decrease. b. Increase. c. Stabilize. d. Not affect.

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Answer #1

Ans is

B) Increase

Working:-

Negative interest-sensitive GAP means that the bank has more interest-sensitive liabilities than interest-sensitive assets.

If the interest rate falls, then, liabilities will decrease and lesser interest will be received. However, since, interest liability is more than interest assets, therefore, banks' interest income will increase.

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