If the Spread Between Rate-Sensitive Assets and Rate-Sensitive Liabilities Increases

question 22

True/False

If the spread between rate-sensitive assets and rate-sensitive liabilities increases for a bank, future changes in interest rates will lead to an increase in net interest income.

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Definitions:

Put Premium

The price that an investor must pay to purchase a put option, representing the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.

Maximum Profit

The highest possible financial gain achievable in a transaction, strategy, or investment, assuming optimal conditions.

Maximum Potential Profit

The highest possible gain that may be achieved on a trade or investment, assuming the most favorable set of circumstances.

Call Contract

An agreement giving the option buyer the right to buy a specified quantity of a security at a set price within a specific time frame.