A treasury officer in an Australian-based investment bank is performing analysis of the risk of the institutions'
Question:
A treasury officer in an Australian-based investment bank is performing analysis of the risk of the institutions' financial statements based on the institutions' GAP and Duration GAP. She calculates that the bank has a total asset value of AUD200 million and total liabilities of AUD180 million on its balance sheet. She also calculates the weighted average duration of the banks' assets and liabilities to be 1.0 and 2.0 years, respectively.
Required:
Explain the approaches that the bank manager could take to manage the interest rate risk of the bank if she believesthat interest rates will rise in future. How would her answer change if interest rates were expected to fall instead? Show all working. Use dot points where necessary.
Financial accounting
ISBN: 978-0132751124
9th edition
Authors: Walter T. Harrison Jr., Charles T. Horngren, C. William Thom