Bank A has the following balance sheet information (in millions): Rate-sensitive assets are repriced quarterly at the
Question:
Rate-sensitive assets are repriced quarterly at the 91-day Treasury bill rate plus 150 basis points. Fixed-rate assets have five years until maturity and are paying 9 percent annually. Rate-sensitive liabilities are repriced quarterly at the 91-day Treasury bill rate plus 100 basis points. Fixed-rate liabilities have two years until maturity and are paying 7 percent annually. Currently, the 91-day Treasury bill rate is 6.25 percent.
a. What is the bank's current net interest income? If Treasury bill rates increase 150 basis points, what will be the change in the bank's net interest income?
b. What is the bank's repricing or funding gap? Use the repricing model to calculate the change in the bank's net interest income if interest rates increase 150 basis points.
c. How can swaps be used as an interest rate hedge in this example?
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders