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Question
A bank has a negative repricing gap using a 6-month maturity bucket. Which one of the following statements is most correct if MMDAs are rate-sensitive liabilities?
A. If all interest rates are projected to increase, to limit a profit decline when this occurs, the bank could encourage its retail deposit customers to switch from 2-year CDs at current rates to 3-month CDs.
B. If all interest rates are projected to decrease, to limit a profit decline when this occurs, the bank could encourage its retail deposit customers to switch from MMDAs to 2-year CDs at current rates.
C. If all interest rates are projected to decrease, to limit a profit decline when this occurs, the bank could encourage its retail deposit customers to switch from 3-month CDs to 2-year CDs at current rates.
D. If all interest rates are projected to increase, to limit a profit decline when this occurs, the bank could encourage its retail deposit customers to switch from 2-year CDs at current rates to MMDAs.
E. If all interest rates are projected to increase, to limit a profit decline when this occurs, the bank could encourage its retail deposit customers to switch from MMDAs to 2-year CDs at current rates.
Answer
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