A Bank Has a Negative Repricing Gap and Estimates That

question 3

Multiple Choice

A bank has a negative repricing gap and estimates that the spread between RSAs and RSLs will move inversely with interest rates. If interest rates increase,NII will

• A)rise.
• B)fall.
• C)be unchanged.
• D)rise or fall depending on the size of the spread effect relative to the size of the CGAP effect.
• E)None of the options are correct.

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Definitions:

Efficiency

The optimal allocation and use of resources to produce goods and services in the most cost-effective and waste-free manner.

P > MC

Indicates a scenario in price (P) is greater than marginal cost (MC), suggesting that a firm could potentially increase profits by increasing production since each additional unit produced costs less than the price it would sell for.

Monopoly

A market structure in which a single seller controls the entire market for a good or service, with no close substitutes.

Monopoly Model

A market structure where a single seller dominates the market, facing no competition, resulting in high prices and restricted output.