Question: QUESTIGN {ZINE a} Briey explain what a negative duration gap implies regarding the direction of the sensitivity of a bank's protability to interest rates. What

QUESTIGN {ZINE a} Briey explain what a negative duration gap implies regarding the direction of the sensitivity of a bank's protability to interest rates. What would be the impact of a negative interest rate shock on banks equity? Explain clearly. [2|] marks) b) What are the two ways for a nancial institution to hedge interest exposure to interest rates? [2|] marks) c} Assuming you observe the current price 5.} of a stock being $5 and the current price of a futures contract with 3-month maturity written on the stock being Fo=$55. The risk-free interest rate r is 3%. Is there an arbitrage opportunity in the market? If yes, what is the arbitrage strategy and the respective arbitrage prot from this strategy? {10 marks)

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