The worked question on this page is original educational practice. It is not represented as a question from an official previous-year examination paper.
01 / UNDERSTANDING
Review the question
Create an original repricing question whose answer depends on timing rather than a memorised slogan about rising rates. Hold asset income fixed while funding resets to expose the timing mismatch. An original checkpoint is: How much does the stated spread income fall after funding reprices? Supported answer: 2 units. Explain the decisive fact, then alter one condition and solve again. This is an original practice method, not a claim that the question appeared in an official past paper.
02 / UNDERSTANDING
The concept in context
A simplified gap illustration excludes behavioural responses, hedges and other features that can materially alter actual bank exposure. A useful study check is to place asset and liability repricing dates together, then distinguish income exposure from valuation exposure. Explain why the method fits the stated facts before applying it to a changed situation.
03 / UNDERSTANDING
A worked learning case
A fictional bank earns a fixed 8 on a 100-unit asset and initially pays 3 on matching funding. Its simplified annual spread income is 5. If funding reprices to 5 while asset income remains fixed at 8, spread income falls to 3. The example isolates a timing mismatch rather than predicting every bank’s response to rising rates.
ORIGINAL EDUCATIONAL PRACTICE
Try it before you check.
How much does the stated spread income fall after funding reprices?
Show the answer and reasoning
2 units.
Initial spread income is 8 minus 3, equal to 5. After the funding cost rises, it is 8 minus 5, equal to 3. The difference is 2. Because asset income is held fixed in the example, the funding repricing is not offset; a different repricing structure could produce another result.
Two traps to watch for.
- Assuming higher rates always increase a bank’s net interest income.
- Ignoring whether the asset and funding reprice at different times.
YOUR TOPIC-SPECIFIC LEARNING MAP
Learn from the attempt
Place asset and liability repricing dates together.
Calculate income and funding cost separately.
Distinguish income exposure from valuation exposure.
Explain the idea, apply it to a new situation, then check what changed in your reasoning.
BANKERS TUTORIAL · SOURCE NOTES
Keep the source alongside your notes.
Official links provide subject context and authoritative reference material. This guide’s explanation, scenario and question are original Bankers Tutorial learning content.
- m.rbi.org.in https://m.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=711
- rbi.org.in https://rbi.org.in/scripts/PublicationsView.aspx?Id=18086
For RBI preparation, check the current official notice before relying on changing dates, rules or examination requirements.
