An asset-sensitive bank will have a ___ cumulative gap and will benefit from ___ interest rates.

An asset-sensitive bank will have a ___ cumulative gap and will benefit from ___ interest rates.
A . Positive; dropping
B . Positive; rising
C . Negative; dropping
D . Negative; rising

View Answer

Answer: B

Explanation:

An asset-sensitive bank has more rate-sensitive assets than rate-sensitive liabilities. This results in a positive cumulative gap, meaning the bank will benefit from rising interest rates. As interest rates increase, the income from rate-sensitive assets will increase more than the expense on rate-sensitive liabilities, improving the bank’s net interest income.