Assets ($ Mill) Liabilities & Equity Variable rate loans (rate reset in 6 months

Question

Assets ($ Mill)

Liabilities & Equity

Variable rate loans

(rate reset in 6 months)

$   800

Long Term Liabilities

Equity

$    600

$     300

$   1,200

Use above given information, what is the cumulative rate sensitive gap?

-$300

-$1,100

$0

None of the above.

Assets ($ Mill)

Liabilities & Equity

Investments under 1 year $   450 Deposits < 1 year $   2,000 Loans < 1 year $   750 Short Term Liabilities $     300

Variable rate loans

(rate reset in 6 months)

$   800

Long Term Liabilities

Equity

$    600

$     300

Fixed Rate Assets > 1 year maturity

$   1,200

Total $3,200 Total $3,200

Explanation / Answer

cumulative rate sensitive gap over a given time period is the difference between the value of assets that mature or reprice during that period and the value of its liabilities that mature or reprice during that period.

SO Assets during Year = Investments under 1 year$450

+ Loans < 1 year $750 = $1200

Liabilities duing year = Deposits < 1 year $2,000 + Short Term Liabilitie $300 = $2300

So The Gap is Asset - Liabilities

= 1200-2300 = -1100

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