If a Bank Had Long-Term Fixed-Rate Assets and Short-Term Liabilities

question 16

Multiple Choice

If a bank had long-term fixed-rate assets and short-term liabilities, and interest rates increased over time, its net interest margin should

• A)decrease.
• B)increase.
• C)stay the same.
• D)either A or B, depending on whether the asset maturities exceed 10 years

---

Definitions:

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, leading to its net profit or loss.

Income Tax Expense

The cost incurred by businesses or individuals due to tax obligations on earned income.

Corporations Proprietorships

Business entities where corporations are legally independent from their owners and proprietorships are owned and run by one individual, with no legal distinction between the owner and the business.

Retained Earnings

The portion of net income not distributed as dividends but retained by the company to be reinvested in its core business or to pay debt.