A Thrift Has an Annual CGAP of −$25 Million

question 49

Essay

A thrift has an annual CGAP of −$25 million. A credit union has an annual CGAP of +$5 million. The thrift has total assets of $500 million and net income of $7.5 million,and the credit union has total assets of $40 million and net income of $0.7 million.
Calculate each institution's CGAP as a percent of assets. Based on the gap,which institution's NII is more sensitive to interest rates? Explain.

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Definitions:

Assembly Department

A section of a manufacturing firm where products or components are assembled before final packaging or shipping.

Predetermined Overhead Rate

A rate used to apply manufacturing overhead to products or job orders, calculated before the period begins based on estimated costs and activity levels.

Direct Labor-Hours

Overall work duration of employees directly involved in the production process.

Machine-Hours

A measure of production time that indicates the total hours a machine is in operation during a specific period.