Assume that Blue Sunday Bank has $200 million of assets with an average duration of 1.6 years
Question:
Assume that Blue Sunday Bank has $200 million of assets with an average duration of 1.6 years and liabilities of $100 million with an average duration of 1.95 years. Compute the current duration gap of this bank. Assuming that U.S. Treasury bonds with a duration of 1.2 years are currently quoted in the market at 98-16, explain the position (buy of sell) in a futures contract (including the number of contracts) that the bank manager should take to eliminate interest rate risk.
The following quotes will be used for the next two parts of this problem.
5-Year U.S. Treasury Bond Futures Contract Quotes from 6 / 27 / 2117
CBT $100,000; pts 32 nd of 100
Source: CME Group. (2013, June 27). 5-year U.S. Treasury note futures. Retrieved from http://www.cmegroup.com/trading/interest-rates/us-treasury/S-year-us-treasury-note_quotes_globex.htmIttprodType=AME
Eurodollar Future Contracts Quotes on 6/27/2013 CME - $100,000; pts of 100%
Source: CME Group. (2013, June 27). 5-year U.S. Treasury note futures. Retrieved from http://www.cmegroup.com/trading/interest-rates/us-treasury/S-year-us-treasury-note_quotes_globex.htmIttprodType=AME
Eurodollar Future Contracts Quotes on 6/27/2013 CME - $100,000; pts of 100%
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders