(b) The following financial statement is for the current year: Second Link Bank

Assets (RM) Duration Liabilities (RM) Duration Reserves Securities < 1 year

5,000,000 5,000,000

0.00 0.40 Checkable deposits

15,000,000 5,000,000

2.00 0.10

BFN5023 / BFC501 FINANCIAL MARKETS AND INSTITUTIONS FEB-MAY 2020 Final Assessment CONFIDENTIAL

Page 6 of 6

1 to 2 years >2 years Residential mortgages Variable rate Fixed rate Commercial loans <1 year 1 to 2 years>2years Buildings, etc. Total

5,000,000 10,000,000

10,000,000 10,000,000

15,000,000 10,000,000 25,000,000 5,000,000 100,000,000

1.60 7.00

0.50 6.00

0.70 1.40 4.00 0.00 Money market deposits Savings accounts CDs Variable-rate <1 year 1 to 2 years>2 years Interbank loans Borrowings <1 year 1 to 2 years>2 years Bank Capital Total

15,000,000 10,000,000 15,000,000 5,000,000 5,000,000 5,000,000 10,000,000 5,000,000 5,000,000 5,000,000 100,000,000

1.00 0.50 0.20 1.20 2.70 0.00 0.30 1.30 3.10

(i) Calculate the duration gap for the bank.

[5 marks] (ii) Calculate the expected net worth if interest rates were to raise 100 basis points from the current rate of 10%.

[4 marks] (iii) What action could the managements take to decrease it interest rate risk? [6 marks]