Consider the following balance sheet positions for a financial institution: $200

Question

Consider the following balance sheet positions for a financial institution:

$200 million

1. What is the impact on net interest income of a 1 percent increase in interest rates?

Select one:

a. -$1,000,000

b. Neutral.

c. $1,000,000

d. None of the above.

Refer to the following for Acme National Bank:

1-YEAR RATE-SENSITIVE ASSETS

$ 80,000,000

1-YEAR RATE-SENSITIVE LIABILITIES

$100,000,000

TOTAL ASSETS

$160,000,000

TOTAL LIABILTITIES

$145,000,000

2. What is Acme's one-year repricing gap?

Select one:

a. $80 million

b. $20 million

c. $15 million

d. -$15 million

e. -$20 million

$200 million

Explanation / Answer

Answer:

1.

The impact on net income of a 1% increase in interest rate

= 1% (Rate -sensitive assets - Rate sentitive liabilities)

= 1% ($200m - $100m)

= 1% of $100 milliom

= $100000 (Answer)

2.

The reprincing gape is a measure of the difference between the value of assets and the value of liabilities that will reprice within a specific time period.

So, Acme's one year repricing gap= (1Year Rate sensitive assets - 1 Year rate sensitive liabilities)

= $80,000,000 - $100,000,000

= -$2000,000 or -$20 million (answer)

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