Gap analysis predicts that a decrease in interest rates will result in a rise in bank profits when the bank borrows long term and lends short term so that duration exposure is large. the quantity of rate sensitive assets is greater than the quantity of rate sensitive liabilities. the quantity of rate sensitive liabilities is greater than the quantity of rate sensitive assets. there is an increase in the default risk pre ium for junk bonds above investment grade bonds.
Gap analysis predicts that a decrease in interest rates will result in a rise in bank profits when the bank borrows long term and lends short term so that duration exposure is large. the quantity of rate sensitive assets is greater than the quantity of rate sensitive liabilities. the quantity of rate sensitive liabilities is greater than the quantity of rate sensitive assets. there is an increase in the default risk pre ium for junk bonds above investment grade bonds.
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
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