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Unformatted text preview: If rates are expected to rise, does the FI want a positive or negative CGAP? Row CGAP in Rates in NII in Int Rev in Int Exp 1 Positive > 2 Positive > 3 Negative < 4 Negative < Unequal Rate Changes 5 Generally, rate changes happen unequally for RSAs and RSLs. While rates generally move in the same direction, they are not perfectly correlated. The FI, therefore, must be concerned about the: Direction of rate changes. Unequal Rate Changes Example 6 Say, RSA rates increase 1.2% and RSL rates increase 1.0%. Instead of using: NII = CGAP R where, NII = $15 million .01 = $150,000 We need to deconstruct it into two pieces: NII = (RSA RRSA )  (RSL RRSL )...
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This note was uploaded on 01/26/2012 for the course FIN 4620 taught by Professor Patriciarobertson during the Spring '12 term at Kennesaw.
 Spring '12
 PatriciaRobertson
 Interest, Interest Rate

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