Consider the following balance sheet (in millions) for an FI: a. What is the FIs duration gap?

Question:

Consider the following (in millions) for an FI:

a. What is the FI€™s duration gap?
b. What is the FI€™s interest rate risk exposure?
c. How can the FI use futures and forward contracts to create a macrohedge?
d. What is the impact on the FI€™s equity value if the relative change in interest rates is an increase of 1 percent? That is, ˆ†R/(1 + R) = 0.01.
e. Suppose that the FI in part (c) macrohedges using Treasury bond futures that are currently priced at 96. What is the impact on the FI€™s futures position if the relative change in all interest rates is an increase of 1 percent? That is, ˆ†R/(1 + R) = 0.01. Assume that the deliverable Treasury bond has a duration of nine years.
f. If the FI wants to macrohedge, how many Treasury bond futures contracts does itneed?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...