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1. Why does it make sense for a proportion of fixed-rate mortgages to be considered rate-sensitive?...

1. Why does it make sense for a proportion of fixed-rate mortgages to be considered rate-sensitive?

2. Why does it make sense for a proportion of checkable and savings deposits to be considered rate-sensitive?

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Answer #1

1.

A proportion of fixed-rate mortgages to be considered rate-sensitive, because in fixed rate mortgage interest are fixed for full life of mortgage but market interest rate changes according to change in economic scenario and inflation rate. when market rate fall below fixed mortgage rate then value of mortgage loan increases and when market rate raise from fixed rate then value of mortgage loan decreases.

So, a proportion of fixed-rate mortgages to be considered rate-sensitive.

2.

A proportion of checkable and savings deposits to be considered rate-sensitive because these banking instruments provides fixed interest rate on deposits. So, when market interest rate changes from fixed interest rate then value of depsoit also changes.

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