Your bank has the following balance sheet Assets Liabilities Rate-sensitive $100 million Rate-sensitive $75 million Fixed-rate 100 million Fixed-rate 125 million What would happen to bank profits if the interest rates in the economy go down
? Is there anything that you could do to keep your bank from being so vulnerable to interest rate movements?
The bank's profits would go down because it has more interest-rate sensitive assets than liabilities. In order to reduce interest-rate sensitivity, the bank manager could use financial derivatives such as interest-rate swaps, options, or futures. The bank manager could also try to adjust the balance sheet so that the bank's profits are not vulnerable to the movement of the interest rate.
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Answer the following statement true (T) or false (F)
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