The GAP analysis and EAR analysis a. If GAP is positive and interest rate increases the same on both asset and liability sides, EAR increases. b. If GAP is negative and interest rate decreases the same on both asset and liability sides, EAR increases. c. If EARs for year 1, year 2, year 3. ….up to year 30 are all positive, the bank should be profitable. d. If GAP for year 1, year 2, year 3. ….up to year 30 are all zero, the bank’s interest rate risk should be very low.
The GAP analysis and EAR analysis a. If GAP is positive and interest rate increases the same on both asset and liability sides, EAR increases. b. If GAP is negative and interest rate decreases the same on both asset and liability sides, EAR increases. c. If EARs for year 1, year 2, year 3. ….up to year 30 are all positive, the bank should be profitable. d. If GAP for year 1, year 2, year 3. ….up to year 30 are all zero, the bank’s interest rate risk should be very low.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The GAP analysis and EAR analysis
a. If GAP is positive and interest rate increases the same on both asset and liability sides, EAR increases.
b. If GAP is negative and interest rate decreases the same on both asset and liability sides, EAR increases.
c. If EARs for year 1, year 2, year 3. ….up to year 30 are all positive, the bank should be profitable.
d. If GAP for year 1, year 2, year 3. ….up to year 30 are all zero, the bank’s interest rate risk should be very low.
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