Question

A bank is asset sensitive if its:

a. Loans and securities are affected by changes in interest rates.
b. Interest-sensitive assets exceed its interest-sensitive liabilities.
c. Interest-sensitive liabilities exceed its interest-sensitive assets.
d. Deposits and borrowings are affected by changes in interest rates.
e. None of the above.

Answer 1

B. Interest-sensitive assets exceed its interest-sensitive liabilities.

Step-by-step explanation:

In the banking sector/industry, it's obvious that when lending rates increase, banks can earn extra money on adjustable-rate mortgages and credit cards. They can also charge more for brand new loans like car loans and fixed-rate mortgages.

Interest-sensitive assets become more profitable or less profitable as lending rates increase or decrease.

If interest rates rise, a bank earns more take advantage of mortgages and other loans.

If interest rates fall, the patron keeps more cash and spends it elsewhere.

The trends in overall interest rates drive the economy or slow it down.