Reference no: EM132757902

Given the following information:

                              ABC National Bank ($ Millions)

Assets                                             Rate                       Liabilities and Equity                  Rate

Rate Sensitive                 $200       12%           RateSensitive                          $300       6%

Non-Rate Sensitive         400      11%             Non-Rate Sensitive                 300       5%

Non-Earning                     100                             Equity                             100

Total Assets          $700                             Total Liabilities and Equity         $700

a.  Calculate the IS GAP, Net Interest Income and Net Interest Margin.

b.  How much will Net Interest Income and Net Interest Margin change if interest rates fall by 200 basis points?

c. Suggest with explanation what changes in portfolio composition (for rate sensitive assets and liabilities) would you recommend to the banks management if you expect interest rates to increase in the market and interest rate to decrease in the market? State which strategy you are using and explain with clear reasoning for both the scenarios. In both the scenarios try to highlight the impact on net interest income and net interest margin.