CMA Final · Risk Management in Banking and Insurance · Interest Rate Risk Management
A bank has a one-year gap (rate sensitive assets minus rate sensitive liabilities) of +₹200 crore. Rates rise by 1.5 percentage points across the board for the one-year bucket. The expected change in net interest income over the year is:
The change in net interest income equals the gap times the rate change: ₹200 crore × 1.5% = ₹3 crore. Because the gap is positive (assets reprice more than liabilities), rising rates increase net interest income by ₹3 crore.
- A+₹3 croreCorrect
- B-₹3 crore
- C+₹300 crore
- D+₹1.5 crore
Explanation
Change in NII = Gap × change in rate = 200 × 0.015 = ₹3 crore. The gap is positive, so a rate rise increases NII. Negative sign would apply only for a negative gap. ₹300 crore results from forgetting to convert 1.5% to a decimal.
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