Consider the following balance sheet of Banco Agricultural: Assets (K) Duration (years) Variable rate mortgages 300...

  
  

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Consider the following balance sheet of Banco Agricultural: Assets (K) Duration (years) Variable rate mortgages 300 7.2 Fixed rate mortgages 200 5.0 Commercial loans 600 4.2 Physical capital Total Liabilities 250 1350 (K) Duration (years) Money market deposits 350 0.9 Savings deposits 200 2.5 Variable rate CDs 150 0.9 Equity 650 Total 1350 Assumptions Fixed rate mortgages repaid over coming year = 20% Savings deposits that become rate sensitive over the coming year = 25% All commercial loans are rate sensitive All money market deposits are rate sensitive Using income gap analysis, calculate the change in net interest income over the coming year if interest rates increase by 1% from 3% to 4% (6 marks) (b) Discuss the advantages and limitations of income gap analysis. (8 marks) Consider the following balance sheet of Banco Agricultural: Assets (K) Duration (years) Variable rate mortgages 300 7.2 Fixed rate mortgages 200 5.0 Commercial loans 600 4.2 Physical capital Total Liabilities 250 1350 (K) Duration (years) Money market deposits 350 0.9 Savings deposits 200 2.5 Variable rate CDs 150 0.9 Equity 650 Total 1350 Assumptions Fixed rate mortgages repaid over coming year = 20% Savings deposits that become rate sensitive over the coming year = 25% All commercial loans are rate sensitive All money market deposits are rate sensitive Using income gap analysis, calculate the change in net interest income over the coming year if interest rates increase by 1% from 3% to 4% (6 marks) (b) Discuss the advantages and limitations of income gap analysis. (8 marks)