Suppose 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 three year zero coupon Treasury bond.
b. Sell $ 5 million in one year bullet (single payment) loans and buy three month Treasury bills.
c. Obtain two year funding from the Federal Home Loan Bank and lend the proceeds overnight in the federal funds market.