00:01
Here we're taking a look at parts of the financial system, specifically the effects on the profit of banks as interest rates change.
00:09
So we're given here that a bank has fixed rate assets equal to $15 million, rate sensitive assets equal to $30 million, fixed rate liabilities equal to $25 million, and rate sensitive liabilities equal to $20 million.
00:22
We'd like to know what happens to this bank's profits if interest rates increase by 5%.
00:27
So we're going to use the formula i have written in blue here where the change in profits is equal to that amount of rate sensitive assets minus the amount of rate sensitive liability is all multiplied by that change in interest rate.
00:40
So we're given all of this information already, it's fairly straightforward.
00:44
So let's go ahead and calculate these change in profits here.
00:47
And all we really need to do is fill in these pieces of the formula.
00:51
So let's see our rate sensitive assets, you can see that those are given up here.
00:57
And our rate sensitive assets, you can see that those are given up here.
00:58
Liabilities are given just below it.
01:00
So we have rate sensitive assets equal to 30 million, and we have rate sensitive liabilities, which are equal to 20 million...