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How are depository institutions’ balance sheets and income statements affected if rates increase and if they...

How are depository institutions’ balance sheets and income statements affected if rates increase and if they decrease (assume a positive funding GAP and a positive duration GAP)?

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A depositiory institution is a financial institution which accepts the saving from the customer. If the rate of increase will change it will affect the financials of the institution. If the rate increases the and has a postive funding gap, a large or more funds will require to finace the assets and vice-versa if the rates decreses. A positive duration is when the assets exceeds the duration of liabilities. In this case, if the interest rate increases such as 1% then thep prices of assets will fall more than prices of liabilities and vice-versa.

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