The Tropical State Bank has $1,000 in total assets (all of which are earning assets), $700 of which will be repriced within the next 90 days. This bank also has $800 in total liabilities, $400 of which will be repriced within the next 90 days. Currently, the bank is earning 8 percent on its assets and is paying 5 percent on its liabilities. If interest rates on both assets and liabilities rise by 2 percent in the next 90 days, what would be the bank's net interest margin? A. 4 percent B. 4.4 percent C. 4.6 percent D. 2.4 percent
Monetary Policy and Interest Rate
Monetary policy refers to the policy which is enforced by the central bank of the country to control the money supply and economic development of the country. The main aim of monetary policy is to manage inflation, consumption, and growth of the economy. The central bank influences interest rates to manage the money supply. In monetary policy, the central bank may revise the interest rate to increase and decrease the flow of money.
Development of the US Monetary System
The monetary system of a country refers to the system in which a government provides money in the economy of the country. In the modern-day monetary system, usually it contains the National Treasury, the mint where the notes are being printed. The Central bank and the commercial banks regulate the money supply in the economy of a country.
The Tropical State Bank has $1,000 in total assets (all of which are earning assets), $700 of
which will be repriced within the next 90 days. This bank also has $800 in total liabilities,
$400 of which will be repriced within the next 90 days. Currently, the bank is earning 8
percent on its assets and is paying 5 percent on its liabilities.
If interest rates on both assets and liabilities rise by 2 percent in the next 90 days, what would be the
bank's net interest margin?
A. 4 percent
B. 4.4 percent
C. 4.6 percent
D. 2.4 percent
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