Question

What kind of futures or options hedges would be called for in the following situations?

a. Market interest rates are expected to increase and your financial firm’s asset-liability managers expect to liquidate a portion of their bond portfolio to meet customers’ demands for funds in the upcoming quarter.
b. Your financial firm has interest-sensitive assets of $79 million and interest-sensitive liabilities of $88 million over the next 30 days and market interest rates are expected to rise.
c. A survey of Tuskee Bank’s corporate loan customers this month (January) indicates that on balance, this group of firms will need to draw $165 million from their credit lines in February and March, which is $65 million more than the bank’s management has forecasted and prepared for. The bank’s economist has predicted a significant increase in money market interest rates over the next 60 days.
d. Monarch National Bank has interest-sensitive assets greater than interest-sensitive liabilities by $24 million. If interest rates fall (as suggested by data from the Federal Reserve Board) the bank’s net interest margin may be squeezed due to the decrease in loan and security revenue.
e. Caufield Thrift Association finds that its assets have an average duration of 1.5 years and its liabilities have an average duration of 1.1 years. The ratio of liabilities to assets is .90. Interest rates are expected to increase by 50 basis points during the next six months.



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  • CreatedOctober 31, 2014
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