If Interest Rates on Both Assets and Liabilities Rise by 2

question 99

Multiple Choice

If interest rates on both assets and liabilities rise by 2 percent in the next 90 days,what should happen to this bank's net interest margin?

• A)It should fall by 2 percent.
• B)It should fall by 0.5 percent.
• C)It should fall by 4 percent.
• D)It should fall by 1 percent.
• E)It should not record any fall.

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Definitions:

Market Risk Premium

The surplus return an investor aspires to earn by holding onto a market portfolio fraught with risks as compared to safeguarded, risk-free assets.

Beta

An indicator of the variability of a stock's performance compared to the general market, where a beta greater than 1 suggests a volatility superior to that of the market.

Standard Deviation

A statistic that measures the dispersion or variability of a dataset relative to its mean, used in finance to quantify the volatility of an investment.

Beta

A measure of a stock's volatility in relation to the overall market; it indicates the risk associated with a particular equity.