11. If a bank has a negative GAP, an increase in interest rates will cause interest income to __________, interest expense to__________, and net interest income to __________. a. increase, increase, increase b. increase, decrease, increase c. increase, increase, decrease d. decrease, decrease, decrease e. decrease, increase, increase

### C. increase, increase, decrease

## Step1: Understanding GAP### GAP stands for Gap Analysis. In the context of banking, it refers to the difference between the amount of loans a bank has issued and the amount of deposits it has received. A negative GAP means that the bank has issued more loans than it has received in deposits.## Step2: Impact of Interest Rates on Interest Income### When interest rates increase, the interest income from the loans that the bank has issued will also increase. This is because the bank earns interest from the loans it has issued.## Step3: Impact of Interest Rates on Interest Expense### When interest rates increase, the interest expense that the bank has to pay on the deposits it has received also increases. This is because the bank has to pay interest on the deposits it has received.## Step4: Impact of Interest Rates on Net Interest Income### Net Interest Income is calculated as Interest Income minus Interest Expense. Since an increase in interest rates increases both Interest Income and Interest Expense, the effect on Net Interest Income depends on which of these two increases more. In this case, since the bank has a negative GAP (meaning it has more loans than deposits), the increase in Interest Expense (from deposits) will be greater than the increase in Interest Income (from loans). Therefore, the Net Interest Income will decrease.