Suppose a bank has an income gap of -$15 million. How can this bank use interest-rate swaps
Question:
Suppose a bank has an income gap of -$15 million. How can this bank use interest-rate swaps to hedge against interest rate increases? Determine the amount of the notional principal and propose an interest rate swap.
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 100% (2 reviews)
To hedge against interest rate increases a bank can use interest rate swaps In this case since the bank has an income gap of 15 million it wants to pr...View the full answer
Answered By
RADHIKA MEENAKAR
I am a qualified indian Company Secretary along with Masters in finance with over 6 plus years of professional experience. Apart from this i am a certified accounts and finance tutor on many online platforms.
My Linkedin profile link is here https://www.linkedin.com/in/radhika-meenakar-88b9808a/
5.00+
12+ Reviews
22+ Question Solved
Related Book For
Financial Markets And Institutions
ISBN: 9781292215006
9th Global Edition
Authors: Stanley Eakins Frederic Mishkin
Question Posted:
Students also viewed these Business questions
-
Leticia has to hedge the interest rate risk of her holdings of $6,480,000 in Treasury bonds by buying or selling futures contracts. Determine the type of transaction and the price of each contract if...
-
Liverpool Bank has an income gap of -$10 million, Alur Finance Co has an income gap of $25 million and TLBR Bank has an income gap of -$15 million. Propose an interest rate swap that will benefit all...
-
Liverpool Bank has an income gap of - $10 million, Alur Finance Co has an income gap of $25 million and TLBR Bank has an income gap of - $15 million. Propose an interest rate swap that will benefit...
-
Use a calculator to evaluate an ordinary annuity formula \[A=m\left[\frac{\left(1+\frac{r}{n}ight)^{n t}-1}{\frac{r}{n}}ight]\] for \(m, r\), and \(t\) (respectively) given in Problems 7-22. Assume...
-
State the relationship between the following: a. ARACR and sample size b. Population size and sample size c. TER and sample size d. EPER and sample size
-
Sharon Johnson, sales manager for the Alvarez-Baines Company, is trying to choose between two methods for forecasting sales that she has been using during the past five months. During these months,...
-
Let the field emitted by a multimode laser oscillating in \(N\) equals strength and independent modes be represented by \[ \mathbf{u}(t)=\sum_{n=1}^{N} \exp \left[-j\left(2 \pi v_{n} t-\theta_{k}(t)...
-
At the end of the current year, the accounts receivable account of Glenns Nursery Supplies has a debit balance of $390,000. Credit sales are $2,800,000. Record the end-of-period adjusting entry on...
-
Monroe Materials processes a purchased material, PM-20, and produces three outputs, Alpha, Beta, and Gamma. In February, the costs to process PM-20 are $604,000 for materials and $260,000 for...
-
Dickey Bank anticipates an increase in interest rates in 2016 and has therefore decided to engage in an interest-rate swap in which it pays 3% over a notional principal of $4 million annually. Fuller...
-
Suppose you buy a futures contract at a price of 107 and that the margin requirement is 2 points. Determine the settlement price at which you will receive a margin call if the maintenance margin...
-
In response to the Drug-Free Workplace Act, the Department of Labor (DoL) instituted its Drug-Free Workplace Plan, which designated certain DoL positions as sensitive in regard to public health and...
-
Prompt: 'The tale of "Silas Marner",must be read and understood Symbolically and Literally as well.' In the l ight of the above statement, discuss the following characters , and what do they...
-
Post a description of the control mechanism you selected, and explain its relevance to your HSO. Then, explain how you as a current or future health care administrator might apply this control...
-
Give the value after 7.9 years of a capital of $2000 invested at 2.7 % using continuous compounding. Round your answer to the nearest cent.?
-
Dan, Patricia and Jan decide to form Crane Corporation. Dan transfers land (fair market value (FMV) of $200,000, basis of $60,000) for 50% of the stock in Crane. Patricia transfer machinery (FMV of...
-
Describe the problem, and then explain how you would narrow down your selection of approaches to solve the problem.? what type of model you recommend and which techniques you would select. Why would...
-
Focus Fabrication Co. uses ABC. The factory overhead budget for the coming period is $500,000, consisting of the following: Cost Pool Budgeted Amount Direct labor and facility...
-
Baxter, Inc., owns 90 percent of Wisconsin, Inc., and 20 percent of Cleveland Company. Wisconsin, in turn, holds 60 percent of Clevelands outstanding stock. No excess amortization resulted from these...
-
a. Given the preceding information, assess how the demand for and the supply of loanable funds would be affected (if at all), and predict the future direction of interest rates. b. You can obtain a...
-
a. Explain why Carson should be very interested in future interest rate movements. b. Given Carson's expectations, do you think that the company anticipates that interest rates will increase or...
-
Suppose the real interest rate is 6 percent and the expected inflation is 2 percent. What would you expect the nominal rate of interest to be?
-
A 20-year maturity bond with par value of $1,000 makes annual coupon payments at a coupon rate of 6%. Find the bond equivalent and effective annual yield to maturity of the bond for the following...
-
Students were asked, "How stressed have you been in the last week, on a scale of 0 to 10, with 0 being not at all stressed and 10 being as stressed as possible?" The students' responses are shown in...
-
2. For the circuit of Fig. 3, find the currents in the three branches. What is the potential difference VA -VB? 12 V 13 7 V 13 V B
Study smarter with the SolutionInn App