Answer: NII and NIM will increase.

## Explanation In a rising interest rate environment with short-term bonds: - **Short-term bonds** have shorter maturities and will **reprice more quickly** than longer-term assets - **NII (Net Interest Income)** will increase because the bank can reinvest maturing short-term bonds at higher interest rates - **NIM (Net Interest Margin)** will also increase as the spread between asset yields and funding costs widens **Key reasons:** 1. **Asset repricing**: Short-term bonds mature and can be reinvested at higher rates 2. **Constant cost of funds**: Given that funding costs remain constant, the bank benefits from higher asset yields 3. **Positive gap**: Short-term assets create a positive duration gap that benefits from rising rates Therefore, both NII and NIM will increase in this scenario.

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