Question

    If ABC Bank is encouraging its home loan borrowers to

    shift to a floating rate option, the bank is likely to be _______
    A Trying to maximize interest income from home loans Correct Answer Incorrect Answer
    B Expecting home loan rates to go down in near future Correct Answer Incorrect Answer
    C Trying to imitate the international best practices in interest rates Correct Answer Incorrect Answer
    D Reduce asset sensitivity to interest rates in home loan segment Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    By making home loans on floating basis, the bank is increasing it long term rate sensitive assets which would reduce the negative gap between rate sensitive assets and liabilities thereby reducing the liquidity risk for the bank.

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