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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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The depository institutions financial statements gets affected by changes in the interest rates. A positive duration gap means that the duration of assets exceeds the duration of liabilities. If the rates increases then value of assets fall more than the value of liabilities. This affects the financial health of the organisation. If the rates decreases the vice-versa situation occurs. A funding gap occurs when the the current or future operatins have not been funded by any means. If the rate increases then the prices of funding will increase and will affect the financial statements.

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