Use the Following Table to Answer the Question

question 55

Multiple Choice

Use the following table to answer the question :

-If interest rates rise by 5 percentage points,say from 10 to 15%,bank profits (measured using gap analysis) will

• A)decline by $0.5 million.
• B)decline by $1.5 million.
• C)decline by $2.5 million.
• D)increase by $2.0 million.

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Definitions:

Cash Flow Hedge

A financial strategy used to manage the risk of fluctuating cash flows due to changes in exchange rates, interest rates, or commodity prices.

Net Method

An accounting system that records transactions with their net effect, considering any discounts or allowances for prompt payment.

Loan Liability

A financial obligation representing borrowed funds that the borrower is legally required to repay to the creditor, typically with interest.

Foreign Exchange Rate

The rate at which one currency can be exchanged for another, often used in international trade and investment.