List the basic steps in DGAP analysis. What is the importance of different interest rate forecasts?
Answer to relevant QuestionsSuppose that your bank currently operates with a DGAP of 2.2 years. Which of the following will serve to reduce the bank’s interest rate risk? a. Issue a one year zero coupon CD to a customer and use the proceeds to buy a ...Assume that you own a $ 1 million par value corporate bond that pays 7 percent in coupon interest (3.5 percent semiannually), has four years remaining to maturity, and is immediately callable at par. Its current market yield ...Explain how macrohedging differs from microhedging. A basic interest rate swap is priced as a zero net present value transaction. Explain what this means. Use the two year swap data to demonstrate your arguments. Your bank is asset sensitive, and management wants to protect against loss from interest rate changes. a. Would an interest rate cap or floor serve as a better hedge? Explain. b. Would a collar or reverse collar serve as a ...
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