Suppose a bank wishes to sell $150 million in new deposits next month. Interest rates today on comparable deposits stand at 8 percent but are expected to rise to 8.25 percent next month. Concerned about the possible rise in borrowing costs, management wishes to use a futures contract. What type of contract would you recommend? If the bank does not cover the interest rate risk involved, how much in lost potential profits could the bank experience?
Answer to relevant QuestionsWhat kind of futures hedge would be appropriate in each of the following situations?How can financial-service providers make use of interest-rate caps, floors, and collars to generate revenue and help manage interest rate risk?It is March and Cavalier Financial Services Corporation is concerned about what an increase in interest rates will do to the value of its bond portfolio. The portfolio currently has a market value of $101.1 million, and ...Hokie Savings wants to purchase a portfolio of home mortgage loans with an expected average return of 6.5 percent. Management is concerned that interest rates will drop and the cost of the portfolio will increase from the ...What is a credit swap? For what kinds of situations was it developed?
Post your question