Question

Assets Liabilities

1 Short-term consumer loans (one-year maturity) $150 1 Equity capital (fixed) $120
2 Long-term consumer loans 125 2 Demand deposits (two-year maturity) 40
3 Three-month Treasury bills 130 3 Passbook savings 130
4 Six-month Treasury notes 135 4 Three-month CDs 140
5 Three-year Treasury bond 170 5 Three-month bankers acceptances 120
6 10-year, fixed-rate mortgages 120 6 Six-month commercial paper 160
7 30-year, floating-rate mortgages (rate adjusted every nine months) 140 7 One-year time deposits 120
8 Two-year time deposits 40
$970 $970

Required:
Suppose that interest rates rise by 2 percent on both RSAs and RSLs. The expected annual change in net interest income of the bank is:______

Answer 1

Answer: $300,000

Step-by-step explanation:

One year Rate Sensitive Assets (RSA) = Short term consumer loans (one year maturity) + Three month treasury bills + Six month treasury notes + 30 year floating rate mortgages ( rate adjusted every nine months)

= 150 + 130 + 135 + 140

= $555 million

One Year Rate Sensitive liabilities (RSL) = Three month CDs + Three month bankers acceptances + Six month commercial paper + One year time deposits

= 140 + 120 + 160 + 120

= $540 million

RSA - RSL = 555 - 540 = $15 million

Change in interest income = Difference between RSA and RSL * change in interest rates

= 15,000,000 * 2%

= $300,000