A bank wants to use direct refinancing to manage its duration gap, DG. Currently,for its assets, Loans

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A bank wants to use direct refinancing to manage its duration gap, DG. Currently,for its assets, Loans = $22 million and Cash = $6 million. Equity = $4 million. Average DA = 2.75 yrs, and average DL = 4 yrs.

Should the bank buy loans with cash or sell existing loans for cash to reduce its interest rate risk?

What is the duration of the bank's existing loans?

How much cash will be used to eliminate the bank's interest rate exposure, if the loan available on the market has a duration of 7.6 years?

Related Book For answer-question

Fundamentals of Corporate Finance

ISBN: 978-0078034640

7th edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus

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Posted Date: Jun 07, 2023 07:12 AM

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A bank wants to use direct refinancing to manage its duration gap, DG. Currently,for its assets, Loans

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Fundamentals of Corporate Finance

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