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Basic Question 6 of 7
First National Bank finds itself in a situation where it is receiving fixed rate income from its loan portfolio and must pay floating rate expenses to its depositors. If interest rates rise, First National Bank will ______
B. receive more loan income.
C. pay higher expenses to its depositors.
A. receive less loan income.
B. receive more loan income.
C. pay higher expenses to its depositors.
User Contributed Comments 8
| User | Comment |
|---|---|
| synner | what's wrong with A? |
| nchilds | No matter what the scenario, First National will be receiving a fixed loan income... However, the net amount will be less. |
| stefdunk | actually, the net amount on the fixed loan won't be less. it's a FIXED loan |
| surob | Good question |
| viannie | Loan income is fixed since loan interest is fixed. Interests paid to depositors is variable, hence rising rate, pays more interests to depositors. |
| zkhan87 | so they'd enter into a pay fixed swap |
| johntan1979 | Question already stated "fixed rate income"... |
| GBolt93 | Think he meant net of fixed income - expenses to depositors. |
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Learning Outcome Statements
describe how interest rate swaps are priced, and calculate and interpret their no-arbitrage value;
CFA® 2025 Level II Curriculum, Volume 5, Module 31.