Suppose that Third Bank has $400 million in assets. Of these, $150 million are rate-sensitive assets such as variable-rate and short-term loans. On the liabilities side, Third Bank has $100 million in rate-sensitive liabilities such as variable-rate CDs and Money Market Deposit Accounts.
a. What is the Gap for Third Bank?
b. By how much would Third Bank's profits change if interest rates increase by 2%?